May 032016
 
 May 3, 2016  Posted by at 9:14 am Finance Tagged with: , , , , , , , , , , ,  


DPC French Market, New Orleans 1910

The EU Exists Only To Become A Superstate (Lawson)
US Dollar Falls To 1-Year Low (BBG)
Yen Under Pressure to Extend World-Beating Rally Against Dollar (BBG)
Kuroda Kollapse Kontinues As USDJPY Nears 105 Handle (ZH)
BOJ Chief Kuroda Warns Current Yen Strength Risks Harming Recovery (BBG)
China Factory Activity Contracts for 14th Straight Month In April (CNBC)
Fed’s Williams Sees Big Drop In Asset Prices As Systemic Risk (R.)
Apple’s Losing Streak Is Nearing Historic Levels (BBG)
No Alternative To Low Rates For Now, Draghi Says (R.)
ECB Report Says Investors May Be Profiting From Leaked US Data (FT)
Six Counterpoints About Australian Public Debt (Stanford)
‘Bank of Mum and Dad’ Behind 25% Of British Mortgages (G.)
Dominoes: Vanishing Arctic Ice Shifts Jet Stream, Which Melts Glaciers (WaPo)
Germany Wants To Extend Border Controls For Another 6 Months (AP)
Denmark Extends Controls On German Border (EN)
EU States Face Charge For Refusing Refugees (FT)
90,000 Unaccompanied Minors Sought Asylum In EU In 2015 (R.)

I don’t think I have much in common with Nigel Lawson -aka Lord Lawson of Blaby-, but it’s important that this ‘little fact’ be known and exposed. Even a superstate needs values if it is to survive. The EU ain’t got any left. Who wants to belong to that?

The EU Exists Only To Become A Superstate (Lawson)

For Britain, the issue in the coming European referendum is not Europe, with its great history, incomparable culture, and diverse peoples, but the European Union. To confuse the two is both geographically and historically obtuse. European civilisation existed long before the coming of the EU, and will continue long after this episode in Europe’s history is, hopefully, over. On the European mainland it has always been well understood that the whole purpose of European integration was political, and that economic integration was simply a means to a political end. In Britain, and perhaps also in the US, that has been much less well understood, particularly within the business community, who sometimes find it hard to grasp that politics can trump economics. The fact that the objective has always been political does not mean that it is in any way disreputable.

Indeed, the most compelling original objective was highly commendable. It was, bluntly, to eliminate the threat to Europe and the wider world from a recrudescence of German militarism, by placing the German tiger in a European cage. Whether or not membership of the EU has had much to do with it, that objective has been achieved: there is no longer a threat from German militarism. But in the background there has always been another political objective behind European economic integration, one which is now firmly in the foreground. That is the creation of a federal European superstate, a United States of Europe. Despite the resonance of the phrase, not one of the conditions that contributed to making a success of the United States of America exists in the case of the EU. But that is what the EU is all about. That is its sole raison d’être. And, unlike the first objective, it is profoundly misguided.

For the United Kingdom to remain in the EU would be particularly perverse, since not even our political elites wish to see this country absorbed into a United States of Europe. To be part of a political project whose objective we emphatically do not share cannot possibly make sense. It is true that our present Prime Minister argues that he has secured a British “opt-out” from the political union, but this is completely meaningless. “But,” comes the inevitable question, “what is your alternative to membership of the EU?” A more absurd question it would be hard to envisage. The alternative to being in the EU is not being in the EU. And it may come as a shock to the little Europeans that most of the world is not in the EU – and that most of these countries are doing better economically than most of the EU.

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Why don’t I see nobody accuse the US of currency manipulation?! That still the Shanghi Accord legacy?

US Dollar Falls To 1-Year Low (BBG)

The dollar fell to an 18-month low against the yen and touched its weakest since August versus the euro amid speculation that the U.S. won’t raise interest rates any time soon. The U.S. currency has lost ground versus most major peers over the past month as traders lowered expectations for a rate increase by the Federal Reserve in June to 12%. The Bloomberg Dollar Spot Index headed for the lowest close in almost a year, after a report showed manufacturing in the U.S. expanded less than forecast. Persistent weakness dragged the dollar down against the euro for a third straight month in April – its longest losing streak since 2013 – amid signs U.S. policy makers aren’t convinced the global and domestic economies can withstand higher borrowing costs.

It fell on Tuesday against Australia’s currency as Chinese equities climbed by the most in nearly three weeks. The U.S. has posted disappointing growth data as nascent signs of recovery emerge in Europe and China’s growth momentum accelerates. “The Fed is completely out of the picture now for the next few weeks – even with the June meeting, there’s got to be a lot of doubt about whether the Fed can raise rates,” said Shaun Osborne at Bank of Nova Scotia in Toronto. “The dollar has just not done particularly well over the past few weeks as the Fed has moved toward delaying rate hikes, and that’s a situation that definitely will continue, certainly for the near term.”

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Abe must be going nuts.

Yen Under Pressure to Extend World-Beating Rally Against Dollar (BBG)

The yen’s world-beating rally against the dollar looks to be gathering momentum, as central bank inaction on both sides of the Pacific Ocean leaves inflation expectations to drive the exchange rate. Japan’s currency extended its climb to an 18-month high Monday after Bank of Japan Governor Haruhiko Kuroda refrained from adding to stimulus on Thursday. That took its gain this year to 13%, the most among developed-market peers. The BOJ’s decision came just hours after Federal Reserve Chair Janet Yellen frustrated dollar bulls by reiterating she’s in no rush to cool the economy by raising interest rates. JPMorgan sees further yen gains after the U.S. put Japan on a new currency watch list.

With consumer price pressures building in the U.S. and dissipating in Japan, that narrows the gap in so-called real yields – the returns an investor can expect after accounting for inflation – supporting yen strength. If both central banks stay on the sidelines, Credit Suisse projects Japan’s currency could rapidly appreciate toward 90 per dollar. “So long as the Fed signals that they are being cautious in raising rates, real yields in the U.S. will decline, leading the dollar weaker,” said Hiromichi Shirakawa, the Swiss lender’s chief Japan economist and a former BOJ official. “The currency market is in a rather dangerous zone.” The BOJ’s benchmark for measuring progress toward its 2% target showed prices retreated at an annual 0.3% pace in March, the biggest decline since April 2013, the month that Kuroda initiated his stimulus program.

It had previously hovered near zero for more than a year. By contrast, the Fed’s preferred measure of inflation, based on the prices of goods and services consumers buy, rose 0.8% in the year through March. The so-called core measure, which strips out food and energy prices, climbed 1.6%. That’s seen a Treasury market gauge of inflation expectations over the coming decade – called the break-even rate – jump to 1.7% from as low as 1.2% in February. The equivalent measure in Japan is languishing at 0.3%. Benchmark 10-year Treasury Inflation Protected Securities yield around 0.1%, compared with about minus 0.5% for equivalent Japanese notes.

Japan met two of three criteria used to judge unfair practices in the U.S. report: a trade surplus with the U.S. above $20 billion, and a current-account surplus amounting to more than 3% of gross-domestic product. The third would be a repeated depreciation of the currency by buying foreign assets equivalent to 2% of gross domestic over a year. Meeting all three would trigger action by the U.S. president to enter discussions with the country and seek potential penalties. China, Germany, South Korea and Taiwan also made the watch list.

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“..Perhaps Jack Lew’s “currency manipulation” report was enough to stall the Japanese currency war for now?..”

Kuroda Kollapse Kontinues As USDJPY Nears 105 Handle (ZH)

Either The BoJ steps in soon and intervenes (even by just “checking levels”) or Kuroda-san is truly terrified of The G-20. USDJPY has now crashed 7 handles since last Thursday’s shock BoJ disappointment crashing to within 5 pips of a 105 handle tonight for the first time in 18 months…

 

 

Erasing the entire devaluation post-Fed, post QQE2…

 

Perhaps Jack Lew’s “currency manipulation” report was enough to stall the Japanese currency war for now? Or is China greatly rotating its Yuan devaluation pressure against another member of its basket…?

 

Charts: Bloomberg

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1) What recovery? 2) Abe and Kuroda are powerless prisoners to America’s dollar manipulation

BOJ Chief Kuroda Warns Current Yen Strength Risks Harming Recovery (BBG)

Bank of Japan Governor Haruhiko Kuroda warned that the yen’s biggest rally since Abenomics began risks harming the nation’s economic recovery. Speaking to reporters in Frankfurt Monday, Kuroda also reiterated that BOJ policy makers won’t hesitate to expand monetary stimulus in order to achieve their 2% inflation target. Japanese Prime Minister Shinzo Abe said the same day in Paris that rapid movements in exchange rates are undesirable, according to national broadcaster NHK. “There is a risk that the yen’s current appreciation brings an unwelcome impact on the economy,” Kuroda said on the sidelines of an annual gathering of finance chiefs from members of the Asian Development Bank, which he used to lead.

“We will be closely monitoring the impact of financial markets on the real economy and prices.” A weaker currency has been a linchpin of Abe’s program to stoke growth and exit deflation. Japan’s economy is at risk of sliding into its second recession in two years after contracting in the final three months of 2015, while inflation remains far from the BOJ’s target. One gauge showed consumer prices retreated at an annual 0.3% pace in March, the biggest decline since April 2013, the month that Kuroda initiated his stimulus program. The yen has climbed 13% against the dollar this year, the best performance among its developed-market peers. That has chipped away at the 36% decline over the previous four years, which was triggered by Abe’s pledge of unlimited monetary easy to correct yen strength.

Kuroda and his board left policy settings unchanged at a meeting Thursday, spurring a nearly 5%, two-day surge in the yen against the dollar. It reached an 18-month high of 106.05 per greenback on Tuesday, before trading at 106.19 as of 9:54 a.m. in Singapore. Japanese markets are closed for holidays Tuesday, Wednesday and Thursday this week.

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Beyond salvation.

China Factory Activity Contracts for 14th Straight Month In April (CNBC)

Activity in China’s manufacturing sector unexpectedly declined further in April, a private survey showed Tuesday, reviving doubts over the health of the world’s second-largest economy. The Caixin Manufacturing Purchasing Managers’ Index (PMI) fell to 49.4 in April from 49.7 in March, according to Markit, which compiles the index. A reading above 50 indicates expansion; one below indicates contraction. The Caixin PMI, which focuses on smaller and medium-sized enterprises, was last in expansionary territory in February 2015. The official PMI, which targets larger companies, printed at 50.2 in April, the second successive month of expansion, figures released over the weekend showed. The survey findings follow recent economic data that appeared to suggest that China’s economy was slowly regaining its poise after a torrid 12 months.

China’s exports rose at their fastest clip in a year in March, while industrial profits also picked up in the first quarter. A flurry of rate cuts and easing of reserve requirement have helped bolster sentiment, while the capital outflows that had unnerved sentiment at the start of the year have slowed. The Caixin survey, however, cast a more somber picture. Respondents reported stagnant new orders, while new export work fell for a fifth month running. Companies shed staff as client demand was muted. “The fluctuations indicate the economy lacks a solid foundation for recovery and is still in the process of bottoming out. The government needs to keep a close watch on the risk of a further economic downturn,” said He Fan at Caixin Insight Group.

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What blows up must blow down.

Fed’s Williams Sees Big Drop In Asset Prices As Systemic Risk (R.)

San Francisco Fed President John Williams reiterated Monday his view that the U.S. economy is ready for higher interest rates, but flagged the risk of broad-based declines in asset prices as a result. “It makes sense for us to be moving interest rates gradually back to more a normal level over the next couple years,” Williams said. “I actually think that’s a sign of strength for the global economy.” Speaking at a panel on systemic risk at the Milken Institute Global Conference, Williams said the biggest systemic financial risk currently is the possibility that “broad sets of assets are going to see big movements downward” as interest rates rise. “That’s an area that I think is a potential risk.” Williams did not suggest he sees another crisis brewing, adding that U.S. regulators have made “amazing” progress in shoring up banks against potential future failure.

“What I worry a lot more about is when people forget about the financial crisis, when they forget about the terrible things that happened,” he said, suggesting that may not happen for another five or ten years. The Fed raised interest rates for the first time in nearly a decade last December, but has held off raising them any further amid global stock volatility and worries over a decline in global growth. Even after the Fed resumes raising rates, Williams said, it will not be able to lift them as high as it has in the past. Most Fed officials currently think that the rate at which the economy can sustain healthy employment and steady prices has probably fallen to about 3.25% in the long run, a full %age point lower than was the case before the crisis. But there are significant downside risks to that estimate, Williams said.

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No. 1 US stock for years.

Apple’s Losing Streak Is Nearing Historic Levels (BBG)

So far in 2016, Apple is the dog of the Dow. After an underwhelming earnings report led to the shares’ worst week since January 2013, Apple stock extended its losses to kick off May, closing down 0.18% on Monday. The benchmark index’s laggard has declined by nearly 11% so far this year heading into today’s session: Bespoke Investment Group notes that Monday’s negative close marks eight straight sessions in the red for Apple—something that last happened in July 1998, and has now happened only four times in the company’s history. More than $79 billion in Apple’s market capitalization has been erased over the past eight sessions.

The company’s heavy weighting in major sector and benchmark indexes, coupled with the stock’s terrible two-week stretch, has made $4 billion in assets of exchange-traded funds evaporate over this stretch. “Smart beta” ETFs are poised to trounce their more popular peers, Bloomberg’s Eric Balchunas observes, in the event that this span of underperformance continues. There’s a possible silver lining for Apple bulls, and investors who own those market-cap-weighted ETFs: The stock tends to bounce back in earnest following these rare stretches of rotten performance. “Two of the three eight-day streaks saw the stock fall on day nine as well, but the stock has never experienced a losing streak longer than nine trading days,” Bespoke writes. “While the next day and next week returns following eight-day losing streaks lean negative, the stock has been higher over the next month all three times for a median gain of 8.01%.”

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Well, there is, but Draghi’s masters don’t want it.

No Alternative To Low Rates For Now, Draghi Says (R.)

Low interest rates are not harmless but they are only the symptom, not the cause of an underlying problem across major economies, ECB President Mario Draghi said on Monday, arguing that there was no alternative for now. “Thus the second part of the answer to raising rates of return is clear: continued expansionary policies until excess slack in the economy has been reduced and inflation dynamics are sustainably consistent again with price stability,” Draghi told a conference. “There is simply no alternative to this today.” “The only potential margin for maneuver is in the composition of the policy mix, that is, the balance of monetary and fiscal policy,” he added.

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Corruption is not a deficiency, it’s the MO.

ECB Report Says Investors May Be Profiting From Leaked US Data (FT)

US investors may be profiting from leaked economic data releases that allow them to front-run market-moving news, according to a research paper published by the ECB. Macroeconomic news announcements can move markets, as traders watch for indications about how the economy is performing. The data are released to everyone at the same time to ensure fairness but ECB researchers said they had found evidence of “informed trading” ahead of US data releases. Of the 21 market-moving announcements analysed, seven “show evidence of substantial informed trading before the official release time”, according to the paper, including two releases from the US government. The pre-release “price drift” accounts for about half of the overall price impact from the announcement.

The researchers looked at the impact on futures tracking the S&P 500 stock index and the 10-year Treasury bond for the 30 minutes preceding the announcement. The researchers also note that the price impact has become worse since 2008, and estimate that since 2008 profits in the S&P “e-mini” futures market alone amount to about $20m per year. “These results imply that some traders have private information about macroeconomic fundamentals,” said the report. “The evidence suggests that the pre-announcement drift likely comes from a combination of information leakage and superior forecasting based on proprietary data collection and reprocessing of public information.”

The paper raises questions about the safeguards used to ensure data are protected up until scheduled release time. Important economic indicators in the US are subject to the “Principle Federal Economic Indicator” guidelines, but the report notes that many distributors of the data are not subject to the same rules. “To ensure fairness, no market participant should have access to this information until the official release time,” the report added. “Yet, in this paper we find strong evidence of informed trading before several key macroeconomic news announcements.”

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Household debt is a much bigger factor is some countries than others. In Australia, it’s far bigger than government debt. But the latter is what all political talk is about. “Pumping up fear of government debt is always an essential step in preparing the public to accept cutbacks in essential public services.”

Six Counterpoints About Australian Public Debt (Stanford)

In the lead-up to today’s pre-election Commonwealth budget, much has been written about the need to quickly eliminate the government’s deficit, and reduce its accumulated debt. The standard shibboleths are invoked liberally: government must face hard truths and learn to live within its means; government must balance its budget (just like households do); debt-raters will punish us for our profligacy; and more. Pumping up fear of government debt is always an essential step in preparing the public to accept cutbacks in essential public services. And with Australians heading to the polls, the tough-love imagery serves another function: instilling fear that a change in government, at such a fragile time, would threaten the “stability” of Australia’s economy.

However, this well-worn line of rhetoric will fit uncomfortably for the Coalition government, given its indecisive and contradictory approach to fiscal policy while in office. The deficit has gotten bigger, not smaller, on their watch, despite the destructive and unnecessary cutbacks in public services imposed in their first budget. Their response to Australia’s fiscal and economic problems has consisted mostly of floating one half-formed trial balloon after another (from raising the GST to transferring income tax powers to the states to cutting corporate taxes), with no systematic analysis or framework. And their ideological desire to invoke a phony debt “crisis” as an excuse for ratcheting down spending will conflict with another, more immediate priority: throwing around new money (or at least announcements of new money), especially in marginal electorates, in hopes of buying their way back into office.

In short, the politics of debt and deficits will be both intense and complicated in the coming weeks. To help innoculate Australians against this hysteria, here are six important facts about public debt, what it is – and what it isn’t.

1. Australia’s public debt is relatively small

3. Other sectors of society borrow much more than government

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Somone should explain to these people what’s going on. Mum and Dad will lose their shirts AND their skirts. Ironically, some insist more homes must be build. Ironoc, because that would mean even steeper losses for those buying into today’s craze.

‘Bank of Mum and Dad’ Behind 25% Of British Mortgages (G.)

The “Bank of Mum and Dad” will help finance 25% of UK mortgage transactions this year, according to research. Parents are set to lend their children £5bn to help them on to the property ladder. If the lending power was of all these parents was combined, it would be a top 10 mortgage provider. Nigel Wilson, chief executive of Legal & General, which carried out the research, said the data showed a number of issues, including house prices being “out of sync with wages”. The research estimated that the Bank of Mum and Dad will provide deposits for more than 300,000 mortgages. The homes purchased will be worth £77bn and the average contribution is £17,500 or 7% of the average purchase price.

But relying on parental support might soon be unsustainable as parents could be giving away more than they can afford. Wilson said that in London the funding method was reaching “tipping point” already as parental contributions made up more than 50% of the wealth (excluding property) of the average household in the capital. He said: “The Bank of Mum and Dad plays a vital role in helping young people to take their early steps on to the housing ladder.” Not all young people have parents who can afford to help them and some who do still do not have enough to buy a place of their own, he said. He added: “We need to fix the housing market by revolutionising the supply side – if we build more houses, demand can be met at a sensible level and prices will stabilise relative to wages.”

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Positive feedback.

Dominoes: Vanishing Arctic Ice Shifts Jet Stream, Which Melts Glaciers (WaPo)

Investigating the factors affecting ice melt in Greenland — one of the most rapidly changing places on Earth — is a major priority for climate scientists. And new research is revealing that there are a more complex set of variables affecting the ice sheet than experts had imagined. A recent set of scientific papers have proposed a critical connection between sharp declines in Arctic sea ice and changes in the atmosphere, which they say are not only affecting ice melt in Greenland, but also weather patterns all over the North Atlantic. The new studies center on an atmospheric phenomenon known as “blocking” — this is when high pressure systems remain stationary in one place for long periods of time (days or even weeks), causing weather conditions to stay relatively stable for as long as the block remains in place.

They can occur when there’s a change or disturbance in the jet stream, causing the flow of air in the atmosphere to form a kind of eddy, said Jennifer Francis, a research professor and climate expert at Rutgers University. Blocking events over Greenland are particularly interesting to climate scientists because of their potential to drive temperatures up and increase melting on the ice sheet. “When they do happen, and they kind of set up in just the right spot, they bring a lot of warm, moist air from the North Atlantic up over Greenland, and that helps contribute to increased cloudiness and warming of the surface,” Francis said. “When that happens, especially in the summer, we tend to see these melt events occur.” Now, two new studies have suggested that there’s been a recent increase in the frequency of melt-triggering blocking events over Greenland — and that it’s likely been fueled by climate change-driven losses of Arctic sea ice.

A paper set to be published Monday in the International Journal of Climatology reveals an uptick in the frequency of these blocking events over Greenland since the 1980s. A team of researchers led by the University of Sheffield’s Edward Hanna used a global meteorological dataset relying on historical records to measure the frequency and strength of high pressure systems over Greenland all the way back to the year 1851. Previous analyses had only extended the record back to 1948, so the new study is able to place recent blocking events in a much larger historical context. When the researchers analyzed the data, they found that the increase in blocking frequency over the past 30 years is particularly pronounced in the summer, the time of year when blocking events are likely to have the biggest impact on ice melt.

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Clueless, rudderless, valueless.

Germany Wants To Extend Border Controls For Another 6 Months (AP)

Germany and some other EU countries are planning to ask the European Commission for an extension of border controls within the Schengen passport-free travel zone for another six months because they fear a new wave of migrants. Interior Minister Thomas de Maizere’s spokesman says a letter is being sent Monday asking for an extension of the controls on the German-Austrian border, which were implemented last year when thousands of migrants crossed into Germany daily. De Maizere has expressed concern before that an increasing number of migrants will try to reach Europe this summer by crossing the Mediterranean Sea from lawless Libya to Italy, then travel north to Austria and Germany. Germany registered nearly 1.1 million new arrivals last year and is keen to bring the numbers down in 2016.

Germany’s defense minister, meanwhile, said it was up to Italy to protect its borders but other European countries must be ready to help if needed. Ursula von der Leyen’s comments Monday touched on the potential problems Italy could have with increased arrival of migrants looking for an alternative route into the EU now that the West Balkans route is closed and Turkey has committed to taking back those arriving illegally to Greece. She said a solution must be found “together with Italy.” Austria plans to impose border controls at its main border crossing with Italy to prevent potential attempts by migrants to enter, and with Austria bordering Germany, von der Leyen’s comments indicate her country’s concern that it also may have to deal with new waves of migrants seeking entry.

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“..We have to protect ourselves against the Islamic State group..”

Denmark Extends Controls On German Border (EN)

Denmark has extended temporary controls on its border with Germany, first imposed in January to help regulate an influx of migrants. The measures have been prolonged by another month until the beginning of June. The European Commission, struggling to prevent the collapse of the Schengen agreement, has confirmed it will soon authorise more such extensions. The Danish government says it has joined several countries in writing to the Commission asking for a two-year extension. “Together with the Germans, the French, the Austrians and the Swedes I have today sent a letter to the EU commission asking for the possibility to extend the border control for the next two years,” said Inger Støjberg, Danish minister of immigration and integration.

“I have done so because we need to look out for Denmark. We have to protect ourselves against the Islamic State group, who are trying to take advantage of the situation where there are holes in borders. But also as protection against the influx of refugees coming through Europe.” The Commission could give the green light as early as Wednesday to countries within the passport-free Schengen zone wishing to extend exceptional border controls. The five countries have taken the measures because of the influx of migrants and refugees heading north via the so-called Balkans route after entering Europe via the Greek shores. Although the crisis has eased, the governments say many migrants are still camped along the route and in Greece.

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The cattle trade continues unabated. Europeans are as immoral as their leadership.

EU States Face Charge For Refusing Refugees (FT)

European countries that refuse to share the burden of high immigration will face a financial charge of about €250,000 per refugee, according to Brussels’ plans to overhaul the bloc’s asylum rules. The punitive financial pay-off clause is one of the most contentious parts of the European Commission’s proposed revision of the so-called Dublin asylum regulation, due to be revealed on Wednesday. It represents the EU’s most concerted attempt to salvage an asylum system that collapsed under the weight of a million-strong migration to Europe last year, endangering the principle of passport-free travel in the Schengen area. In recent weeks migrant flows to Greece have fallen due to tighter controls through the western Balkans and a deal with Turkey to send-back asylum seekers arriving on Greek islands.

However, the EU remains as politically divided as ever over strengthening the bloc’s asylum rules. While acknowledging these political constraints, the commission’s reforms aim to gradually shift more responsibility away from the overwhelmed frontline states, such as Greece, in future crises, primarily through an automatic system to share refugees across Europe if a country faces a sudden influx. Crucially, this is backed by a clause that allows immigration-wary countries to pay a fee — set at a deliberately high level — if they want to avoid taking relocated asylum seekers for a temporary period. According to four people familiar with the proposal, this contribution was set at €250,000 per asylum seeker in Monday’s commission draft. But those involved in the talks say it may well be adjusted in deliberations over coming days.

“The size of the contribution may change but the idea is to make it appear like a sanction,” said one official who has seen the proposal. Another diplomat said in any event the price of refusing to host a refugee would be “hundreds of thousands of euros”. Eastern European states such as Poland and Hungary would welcome alternatives to mandatory asylum quotas but will balk at the high penalties suggested. At the commission’s recommended rate, Poland would need to pay around €1.5bn to avoid its existing 6,200 quota to relocate refugees from Italy and Greece. These financial contributions are in part designed to fix incentives around migrant quotas, which have badly failed and proved almost impossible to implement even once agreed in law. The commission proposal builds on the EU’s flagship emergency scheme to relocate 160,000 refugees, which has barely redistributed 1% of its target since it was agreed last year.

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And how many did you say are unaccounted for, Europe?

90,000 Unaccompanied Minors Sought Asylum In EU In 2015 (R.)

Some 88,300 unaccompanied minors sought asylum in the EU in 2015, 13% of them children younger than 14, crossing continents without their parents to seek a place of safety, EU data showed on Monday. More than a million people fleeing war and poverty in the Middle East and Africa reached Europe last year. While that was roughly double the 2014 figure, the number of unaccompanied minors quadrupled, statistics agency Eurostat said. Minors made up about a third of the 1.26 million first-time asylum applications filed in the EU last year. EU states disagree on how to handle Europe’s worst migration crisis since World War II and anti-immigrant sentiment has grown, even in countries that traditionally have a generous approach to helping people seeking refuge.

Four in 10 unaccompanied minors applied for asylum in Sweden, where some have called for greater checks, suspicious that adults are passing themselves off as children in order to secure protection they might otherwise be denied. Eurostat’s figures refer specifically to asylum applicants “considered to be unaccompanied minors,” meaning EU states accepted the youngsters’ declared age or established it themselves through age assessment procedures. More than 90% of the minors traveling without a parent or guardian were boys and more than half of them were between 16 and 17 years old. Half were Afghans and the second largest group were Syrians, at 16% of the total. After Sweden, Germany, Hungary and Austria followed as the main destinations for unaccompanied underage asylum seekers.

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May 022016
 
 May 2, 2016  Posted by at 9:28 am Finance Tagged with: , , , , , , , , , , , ,  


NPC Walker Hill Dairy, Washington, DC 1921

Japanese Stocks Fall Sharply in the Morning (WSJ)
Asian Economies Stay Sluggish, Stimulus Lacks Traction (R.)
World’s Longest NIRP Experiment Shows Perverse Effects (BBG)
Leaked TTIP Documents Cast Doubt On EU-US Trade Deal (G.)
‘The Fed Is Afraid Of Its Own Shadow’ (CNBC)
Fed May Need More Powers To Support Securities Firms During Crises: Dudley (R.)
Puerto Rico To Default On Government Development Bank Debt Monday (CNBC)
Banks Told To Stop Pushing Own Funds (FT)
Halliburton and Baker Hughes Scrap $34.6 Billion Merger (R.)
Will Australia’s Ever-Growing Debt Pile Peak In Six Years? (BBG)
Europe’s Liberal Illusions Shatter As Greek Tragedy Plays On (G.)
Bank Of England Busy Preparing For Brexit Vote (FT)
Nearly Half Of British Parents Raid Children’s Piggy Banks To Pay Bills (PA)
‘Bitcoin Creator Reveals Identity’ (BBC)
Storm Clouds Gathering Over Kansas Farms (WE)
NATO Moves Ever Closer To Russia’s Borders (RT)
Austria, Germany Press EU To Prolong Border Controls (AFP)
Newborn Baby Among 99 Dead After Shipwrecks In Mediterranean (G.)

The yen keeps rising. Pressure is building. Relentlessly.

Japanese Stocks Fall Sharply in the Morning (WSJ)

Japanese stocks fell sharply early Monday, leading declines in the rest of Asia, on the yen’s surge to a new 1 1/2-year high against the dollar, weak earnings results from several firms and selling after the Bank of Japan’s inaction on Thursday. The Nikkei Stock Average was down 3.6% at the lunch break in Tokyo. Japanese markets were closed on Friday for a national holiday. Australia’s ASX 200 was 1.3% lower, New Zealand’s NZX-50 was down 0.2% and South Korea’s Kospi was 0.5% lower. Many markets in Asia were closed for national holidays, including China, Hong Kong and Singapore. Japanese stocks are extending falls following the BOJ’s decision to keep its policies unchanged despite slowing inflation and previous expectations for a boost for its asset-purchase program, particularly in exchange-traded funds.

The yen’s surge against the dollar is also hitting Japanese exporters. The dollar was at ¥106.48 after falling to as low as ¥106.14, the lowest level since October 2014, according to EBS. “Bad news takes place all at once,” said Katsunori Kitakura, strategist at Sumitomo Mitsui Trust Bank. He said market turbulence around the BOJ policy meetings suggests the central bank’s communication with markets isn’t as smooth as it should be.“Westpac’s miss on headline expectations has set the tone for a nervous market this morning,” CMC Markets chief market analyst Ric Spooner said. He adds while Westpac’s first-half earnings were only marginally below expectations and there doesn’t appear to be anything seriously alarming, investors are concerned it is struggling to get cost growth down. Westpac is down 4.1%.

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There’s only one thing to keep the BAU facade going in China and Japan: debt. And more debt.

Asian Economies Stay Sluggish, Stimulus Lacks Traction (R.)

Japanese manufacturing activity shrank in April at the fastest pace in more than three years as deadly earthquakes disrupted production, while output in China and the rest of Asia remained lukewarm at best. Even the former bright spot of India took a turn for the worse as both domestic and foreign orders dwindled, pulling its industry barometer to a four-month trough. Surveys due later on Monday are expected to show only sluggish activity in Europe and the US as the world’s factories are dogged by insufficient demand and excess supply. “The backdrop remains one of sub-trend growth, inflation that is below target, difficulty in increasing revenue as margins are sacrificed to win modest volume gains, slow wage growth cramping spending and central banks that have used up much of their policy ammunition,” said Alan Oster at National Australia Bank.

That is exactly why the U.S. Federal Reserve has been dragging its feet on a follow-up to its December rate hike, leaving the markets in a sweat in case they move in June. Doubts about policy ammunition mounted last week when the Bank of Japan refrained from offering any hint of more stimulus, sending stocks reeling as the yen surged to 18-month highs. The Nikkei was down another 3.6% on Monday while the yen raced as far as 106.14 to the dollar and squeezed the country’s giant export sector. Industry was already struggling to recover from the April earthquakes that halted production in the southern manufacturing hub of Kumamoto. The impact was all too clear in the Markit/Nikkei Japan Manufacturing Purchasing Managers Index (PMI) which fell to a seasonally adjusted 48.2 in April, from 49.1 in March.

The index stayed below the 50 threshold that separates contraction from expansion for the second straight month. The news was only a little better in China where the official PMI was barely positive at 50.1 in April, a cold shower for those hoping fresh fiscal and monetary stimulus from Beijing would enable a speedy pick up. The findings were “a little bit disappointing”, Zhou Hao, senior emerging market economist at Commerzbank in Singapore, wrote in a note. “To some extent, this hints that recent China enthusiasm has been a bit overpriced and the data improvement in March is short-lived.”

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Negative rates lead to the exact opposite of what they’re allegedly intended for. And that’s predictable.

World’s Longest NIRP Experiment Shows Perverse Effects (BBG)

When interest rates are high, people borrow less and save more. When they’re low, savings go down and borrowing goes up. But what happens when rates stay negative? In Denmark, where rates have been below zero longer than anywhere else on the planet, the private sector is saving more than it did when rates were positive (before 2012). Private investment is down and the economy is in a “low-growth crisis,” to quote Handelsbanken. The latest inflation data show prices have stagnated. As the Danes head even further down their negative-rate tunnel, the experiences of the Scandinavian economy may provide a glimpse of what lies ahead for other countries choosing the lesser known side of zero. Denmark has about $600 billion in pension and investment savings.

The people who help oversee those funds say the logic of cheap money fueling investment doesn’t hold once rates drop below zero. That’s because consumers and businesses interpret such extreme policy as a sign of crisis with no predictable outcome. “Negative rates are counter-productive,” said Kasper Ullegaard at Sampension in Copenhagen. The policy “makes people save more to protect future purchasing power and even opt for less risky assets because there’s so little transparency on future returns and risks.” The macro data bear out the theory. The Danish government estimates that investment in the private sector will be equivalent to 16.1% of GDP this year, compared with 18.1% between 1990 and 2012. Meanwhile, the savings rate in the private sector will reach 26% of GDP this year, versus 21.3% in the roughly two decades until Danish rates went negative, Finance Ministry estimates show.

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From ZH: “..55% of Germans and 53% of Americans thought the TTIP deals was beneficial for the two respective countries as recently as 2014; a recent YouGov poll found that support for the deal had tumbled to just 17% and 15% respectively…”

Leaked TTIP Documents Cast Doubt On EU-US Trade Deal (G.)

Talks for a free trade deal between Europe and the US face a serious impasse with “irreconcilable” differences in some areas, according to leaked negotiating texts. The two sides are also at odds over US demands that would require the EU to break promises it has made on environmental protection. President Obama said last week he was confident a deal could be reached. But the leaked negotiating drafts and internal positions, which were obtained by Greenpeace and seen by the Guardian, paint a very different picture. “Discussions on cosmetics remain very difficult and the scope of common objectives fairly limited,” says one internal note by EU trade negotiators. Because of a European ban on animal testing, “the EU and US approaches remain irreconcilable and EU market access problems will therefore remain,” the note says.

Talks on engineering were also “characterised by continuous reluctance on the part of the US to engage in this sector,” the confidential briefing says. These problems are not mentioned in a separate report on the state of the talks, also leaked, which the European commission has prepared for scrutiny by the European parliament. These outline the positions exchanged between EU and US negotiators between the 12th and the 13th round of TTIP talks, which took place in New York last week. The public document offers a robust defence of the EU’s right to regulate and create a court-like system for disputes, unlike the internal note, which does not mention them.

Jorgo Riss, the director of Greenpeace EU, said: “These leaked documents give us an unparalleled look at the scope of US demands to lower or circumvent EU protections for environment and public health as part of TTIP. The EU position is very bad, and the US position is terrible. The prospect of a TTIP compromising within that range is an awful one. The way is being cleared for a race to the bottom in environmental, consumer protection and public health standards.” US proposals include an obligation on the EU to inform its industries of any planned regulations in advance, and to allow them the same input into EU regulatory processes as European firms.

American firms could influence the content of EU laws at several points along the regulatory line, including through a plethora of proposed technical working groups and committees. “Before the EU could even pass a regulation, it would have to go through a gruelling impact assessment process in which the bloc would have to show interested US parties that no voluntary measures, or less exacting regulatory ones, were possible,” Riss said.

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“In a world that’s already choking on too much debt, the cost of money really isn’t an important variable and it is not a binding constraint on anybody’s decision making.”

‘The Fed Is Afraid Of Its Own Shadow’ (CNBC)

The Federal Reserve surprised few last week when it keep interest rates unchanged, noting that it “continues to closely monitor inflation indicators and global economic and financial developments.” However, one market watcher has a blunt message for Fed chair Janet Yellen: You’re placing your hope in a fairy tale. On a recent CNBC’s “Futures Now,” Lindsey Group chief market analyst Peter Boockvar made the case that the Fed will never get the “perfect” conditions they seek before increasing short-term rates once again. The Fed’s mandate “isn’t to have a perfect world. That only exists in fairy tales, dreams and in your econometric models,” Boockvar said in a recent note to clients. He believes that the Fed’s monetary has been far too accommodative under Yellen as well as under Ben Bernanke.

Boockvar argued that the Fed has been taking cues from shaky international banks, and that doing so will always offer a reason to keep interest rates low. In Wednesday’s statement, the strategist noted new suggestions that the Fed is shifting its focus to concerns over international development. In its March statement, the Fed said that “global economic and financial developments continue to post risks,” a line that does not appear in the more recent language. “It’s been excuse, after excuse, after excuse,” Boockvar said. “This is why, eight years into an expansion, they’ve only raised interest rates once. They’re afraid of their own shadow. They’re in a terrible hole that they’re not going to be able to get out of.”

Whether looking at the Fed, the Bank of Japan, or the European Central Bank, Boockvar sees a landscape littered with policy errors. “They all believe that, by making money cheaper, you can somehow generate faster growth,” Boockvar said. Based on this, Boockvar said that central bankers are losing their credibility and their ability to generate higher asset prices, putting the stock market in a precarious position. “In a world that’s already choking on too much debt, the cost of money really isn’t an important variable and it is not a binding constraint on anybody’s decision making.”

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The Fed wants to hold investors’ hands at the crap table.

Fed May Need More Powers To Support Securities Firms During Crises: Dudley (R.)

The U.S. Federal Reserve may need more powers to provide emergency funding to securities firms in times of extreme stress in order to deal with a liquidity crunch, New York Federal Reserve President William Dudley said on Sunday. “Providing these firms with access to the discount window might be worth exploring,” Dudley said in prepared remarks at a financial markets conference in Amelia Island, Florida organized by the Atlanta Fed. The discount window is a credit facility through which banks borrow directly from the U.S. central bank in order to cope with liquidity shortages. The Fed currently has limited ability to provide funding to securities firms in such situations, with the discount window only available to depository institutions.

But the transformation of securities firms since the financial crisis, Dudley said, with the major ones now part of bank holding companies and subject to capital and liquidity stress tests, meant the environment has now changed. “To me, this is a more reasonable proposition now than it was prior to the crisis when the major dealers weren’t subject to those safeguards,” he said. Other “significant gaps” remain in the lender-of-last-resort function, Dudley added. On this, he cited work being done on a global level by the Bank of International Settlements, which is studying deficiencies with respect to systemically important firms that operate across countries. Dudley called for greater attention in order to determine which country would be the lender-of-last-resort for such companies during another crisis. “Expectations about who will be the lender-of-last-resort need to be well understood in both the home and host countries,” he said.

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The perhaps most interesting part: How will this spread to other states? Are we seeing a blueprint emerge?

Puerto Rico To Default On Government Development Bank Debt Monday (CNBC)

Puerto Rico will miss a major debt payment due to creditors Monday, registering the largest default to date for the fiscally struggling U.S. territory. Governor Alejandro Garcia Padilla announced on Sunday the “very difficult decision” to declare a moratorium on the $389 million debt service payment due to bondholders of the island’s Government Development Bank (GDB), which acts as the island’s primary fiscal agent and lender of last resort. “We would have preferred to have had a legal framework to restructure our debts in an orderly manner,” Gov. Garcia Padilla said via a televised address in Spanish.

“But faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice … I decided that essential services for the 3.5 million American citizens in Puerto Rico came first,” he said. This will not be the first default for Puerto Rico — according to Moody’s Investors Services, the government has failed to make about $143 million in debt obligation payments since its historic default in August on subject-to-appropriation bonds issued by the Public Finance Corporation (PFC). The commonwealth will pay the approximately $22 million in interest due on the GDB bonds, as well as the nearly $50 million owed to creditors on a handful of other securities that have payments slated for Monday, according to a source familiar with the situation.

Late on Friday, the bank announced it was able to come to an agreement with credit unions that hold approximately $33 million of the bonds due Monday. Under the deal, these bondholders will swap existing securities with new debt that matures in May, 2017. Gov. Garcia Padilla reiterated his plea to Congress to give the commonwealth the legal tools necessary to address Puerto Rico’s $70 billion debt pile and ensure the sustainability of the island. “Puerto Rico needs Speaker Paul Ryan to exercise his leadership and honor his word…we need this restructuring mechanism now,” he said.

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Stupid games resulting from unconditional TBTF central bank support.

Banks Told To Stop Pushing Own Funds (FT)

Brussels has moved to stamp out the practice of large banks funnelling clients towards poorly performing in-house asset management products under new rules designed to improve investor protection across Europe. Over the past two years, independent asset managers and investor rights groups have raised concerns that bank advisers are increasingly recommending in-house funds to clients when investors might be better off in external products. These concerns have been fuelled by the rapid growth of banks’ asset management divisions. Seven of the 10 bestselling asset management companies in Europe last year were subsidiaries of banks. But under new EU legislation known as Mifid II, bank advisers who want to continue receiving commission payments will have to offer funds from external investment companies.

Guidelines on how the rules will apply, released last month, state that advisers can only receive commissions if they offer a “number of instruments from third-party product providers having no close links with the investment firm”. Commentators said the new rules would be a big change for the market. Sean Tuffy, head of regulatory affairs at BBH, the financial services company, said the additional Mifid II guidelines were “unexpected”. He added: “Asset managers would welcome that provision. One of their biggest concerns is the ever-closed architecture world [where banks only push their own funds].” James Hughes at lobby group Cicero said: “When the new rules come into force in 2018] banks won’t be able to only offer their own products. This will be monitored by national [regulators] through a mixture of mystery shopping tests and customer service panels.”

Under the existing system, many banks solely recommend internal products to investors. This keeps fees and commission payments in-house and boosts the parent company’s profitability. Some banks, such as UBS, say they offer a small number of external funds to clients. Others — including Goldman Sachs, Deutsche Bank, Credit Suisse and Morgan Stanley — say they offer a high proportion of external funds to clients, a model known in the industry as “open architecture”. None of the banks mentioned are willing to provide a breakdown of the level of external funds sold versus internal products. The push to make banks recommend more external products can be circumvented if an adviser agrees to assess the suitability of a client’s investments on at least an annual basis.

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“..Baker Hughes, which was valued at $34.6 billion when it was announced in November 2014, and is now worth about $28 billion..”

Halliburton and Baker Hughes Scrap $34.6 Billion Merger (R.)

Oilfield services provider Halliburton and smaller rival Baker Hughes announced the termination of their $28 billion merger deal on Sunday after opposition from U.S. and European antitrust regulators. The tie-up would have brought together the world’s No. 2 and No. 3 oil services companies, raising concerns it would result in higher prices in the sector. It is the latest example of a large merger deal failing to make it to the finish line because of antitrust hurdles. “Challenges in obtaining remaining regulatory approvals and general industry conditions that severely damaged deal economics led to the conclusion that termination is the best course of action,” said Dave Lesar, chief executive of Halliburton.

The contract governing Halliburton’s cash-and-stock acquisition of Baker Hughes, which was valued at $34.6 billion when it was announced in November 2014, and is now worth about $28 billion, expired on Saturday without an agreement by the companies to extend it, Reuters reported earlier on Sunday, citing a person familiar with the matter. Halliburton will pay Baker Hughes a $3.5 billion breakup fee by Wednesday as a result of the deal falling apart. The U.S. Justice Department filed a lawsuit last month to stop the merger, arguing it would leave only two dominant suppliers in 20 business lines in the global well drilling and oil construction services industry, with Schlumberger being the other. “The companies’ decision to abandon this transaction – which would have left many oilfield service markets in the hands of a duopoly – is a victory for the U.S. economy and for all Americans,” U.S. Attorney General Loretta Lynch said in a statement on Sunday.

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One thing only is sure: the debt is growing. All the rest is somewhere between propaganda and wishful thinking. If more debt is projected to provide more votes, what do you think will happen?

Will Australia’s Ever-Growing Debt Pile Peak In Six Years? (BBG)

Australia’s drive to balance the books will see the federal government’s debt pile top out within about five or six years and then start to shrink again, according to Treasurer Scott Morrison. Speaking in Canberra just ahead of his first budget on Tuesday, Morrison said he expects the fiscal deficit to narrow over the government’s four-year forecast horizon and pledged to keep expenditure under control. “To start reducing the debt you’ve got to get the deficit down. To get the deficit down you’ve got to get your spending down,” Morrison said in a Channel Nine television interview on Sunday. “The deficit will decrease over the budget and forward estimates and we will see both gross and net debt peak over about the next five or six years, and then it will start to fall.”

The Australian budget was last in surplus in 2007-08 and attempts to rein in the deficit have been stymied by a slump in revenue as commodity prices fell. Morrison’s challenge is to maintain Australia’s public finances on a sound footing without increasing risks to the economy as it reduces its reliance on mining. He must also contend with the prospect of an upcoming election, which Prime Minister Malcolm Turnbull is expected to call for July 2. Total outstanding federal debt is now more than seven times larger than it was before the 2008 global crisis and net debt is predicted to increase to 18.5% of GDP in 2016-17, according to a Bloomberg survey of economists. The underlying cash deficit is expected to reach A$35 billion ($27 billion) next fiscal year, A$1.3 billion more than the government had forecast in its December fiscal update.

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“It will then be punished further for being unable to do what was impossible in the first place.”

Europe’s Liberal Illusions Shatter As Greek Tragedy Plays On (G.)

Greece is running out of money. The government in Athens is raiding the budgets of the health service and public utilities to pay salaries and pensions. Without fresh financial support it will struggle to make a debt payment due in July. No, this is not a piece from the summer of 2015 reprinted by mistake. Greece, after a spell out of the limelight, is back. Another summer of threats, brinkmanship and all-night summits looms. The problem is a relatively simple one. Greece is bridling at the unrealistic demands of the EC and the IMF to agree to fresh austerity measures when, as the IMF itself accepts, hospitals are running out of syringes and buses don’t run because of a lack of spare parts. Athens has already pushed through a package of austerity measures worth €5.4bn as the price of receiving an €86bn bailout agreed at the culmination of last summer’s protracted crisis and expected the deal to be finalised last October.

Disbursements of the loan have been held up, however, because neither the commission or the IMF believe that Greece will make the promised savings. So they are demanding that Alexis Tsipras’s government legislate for additional “contingency measures” worth €3.6bn to be triggered in the event that Greece fails to meet its fiscal targets. This is almost inevitable, given that the target is for the country to run a primary budget surplus of 3.5% of GDP by 2018 and in every year thereafter. This means that once Greece’s debt payments are excluded, tax receipts have to exceed public spending by 3.5% of GDP. The exceptionally onerous terms are supposed to whittle away Greece’s debt mountain, currently just shy of 200% of GDP. If this all sounds like Alice in Wonderland economics, then that’s because it is.

Greece is being set budgetary targets that the IMF knows are unrealistic and is being set up to fail. It will then be punished further for being unable to do what was impossible in the first place. Predictably enough, the government in Athens is not especially taken with this idea. It has described the idea as outlandish and unconstitutional, but is in a weak position because it desperately needs the bailout loan and threw away its only real bargaining chip last year by making it clear that it would stay in the single currency whatever the price. So Tsipras is doing what he did last year. He is playing for time, hopeful that by hanging tough and threatening another summer of chaos he can force Europe’s leaders to offer him a better deal – less onerous deficit reduction measures coupled with a decent slug of debt relief. For the time being though, the matter is being handled by the eurozone’s finance ministers, who want their full pound of flesh.

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Not preparing to assist people, only banks.

Bank Of England Busy Preparing For Brexit Vote (FT)

The Bank of England is consumed with preparing contingency plans for Britain to leave the EU, with staff across its financial stability, monetary policy and regulatory wings ready to calm any turmoil. In the days leading up to the June 23 poll, the Bank will hold additional auctions of sterling to ensure the banking system has sufficient funds to operate in a potentially chaotic moment. Three exceptional auctions of cash have already been planned for June 14, 21 and 28. But stuffing the banks full of cash will not prevent foreigners and UK households and companies dumping sterling in the event of a Brexit vote. Michael Saunders, the new member of the bank’s Monetary Policy Committee, expects the pound to come under severe pressure.

While still at Citi, he wrote that Brexit risks were “nowhere near priced yet”, adding that Britain should expect a 15 to 20% depreciation of sterling against Britain’s main trading partners. If such a decision to flee sterling leads British banks to become short of foreign currency, the BoE will rapidly offer foreign currency loans to the financial system, using swap lines with other central banks still in existence from the financial crisis. Philip Shaw of Investec said that using such swap lines would be needed only in “fairly extreme circumstances” and the BoE would also need to “make reassuring noises about the soundness of the financial system” to help shore up confidence.

Officials are already pointing to the 2014 stress test of banks, which assumed a reassessment of the health of the UK economy led to a “depreciation of sterling”, to suggest that the banking system would cope. “Unless any UK financial institutions have bet their shirt on an early recovery of sterling it is hard to see what Brexit would do in immediate terms,” said Stephen Wright, a professor at Birkbeck College, London University. The week after the referendum, the Financial Policy Committee will have an opportunity to loosen the requirements for banks to hold capital if there is a financial panic, putting in place the new regime of measures to counter the credit cycle. But even if the BoE could cope with immediate market gyrations from Brexit, it would soon face what Mr Saunders called “a major policy dilemma” over interest rates.

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UK 2016. Lovely. And Cameron’s not done.

Nearly Half Of British Parents Raid Children’s Piggy Banks To Pay Bills (PA)

Nearly half of parents admit to being “piggy bank raiders” who occasionally dip into their children’s cash to cover costs such as parking, takeaways, taxis, school trips and paying the window cleaner. Some 46% of parents of children aged between four and 16 years old said they have taken money from their child’s savings, a survey by Nationwide Building Society has found. The average amount taken over the past year was £21.41, while one in 10 parents had taken £50 or more during that period. Mums are more likely to raid their child’s savings than dads, but dads tend to swipe larger amounts the survey found. The months after Christmas, when many families are getting their finances back on track, also appear to be the time when piggy bank raiders are most prolific.

The survey of 2,000 parents found those in Yorkshire and the Humber, north-east England and south-west England were the most likely to use children’s savings, with those in London, Wales and north-west England the least likely. About 15% of piggy bank raiding parents said they used the cash to pay school lunch money, while the same proportion also use it to pay a bill; 11% used the money for school trips and 11% used it as loose change for parking. One in 12 took the money to tide themselves over as they were broke. A further 12% used the cash for other purposes, including bus fares, hair cuts, petrol costs, takeaways, paying the window cleaner and for the “tooth fairy”.

The vast majority of parents (93%) said they put the money back afterwards – and only 39% of children noticed the money had disappeared. Nearly a third of parents who took money said they had confessed to their child, while 23% sneaked the money back into their child’s piggy bank. One in seven added interest to the amount they had borrowed. Andrew Baddeley-Chappell, Nationwide’s head of savings and mortgage policy, said: “Despite being in charge of instilling a good approach to finance, almost half of parents have been caught in spring raids on their kid’s piggy bank stash. While liberating change for parking or to pay school lunch money could be viewed as excusable, one in 10 parents borrowed more than £50 in the last year, including for paying bills.

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And the media are overflowing with questions.

‘Bitcoin Creator Reveals Identity’ (BBC)

Australian entrepreneur Craig Wright has publicly identified himself as Bitcoin creator Satoshi Nakamoto. His admission ends years of speculation about who came up with the original ideas underlying the digital cash system. Mr Wright has provided technical proof to back up his claim using coins known to be owned by Bitcoin’s creator. Prominent members of the Bitcoin community and its core development team have also confirmed Mr Wright’s claim. Mr Wright has revealed his identity to three media organisations – the BBC, the Economist and GQ.

At the meeting with the BBC, Mr Wright digitally signed messages using cryptographic keys created during the early days of Bitcoin’s development. The keys are inextricably linked to blocks of bitcoins known to have been created or “mined” by Satoshi Nakamoto. “These are the blocks used to send 10 bitcoins to Hal Finney in January [2009] as the first bitcoin transaction,” said Mr Wright during his demonstration. Renowned cryptographer Hal Finney was one of the engineers who helped turn Mr Wright’s ideas into the Bitcoin protocol, he said.

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Meanwhile below the radar….

Storm Clouds Gathering Over Kansas Farms (WE)

While the lush green sea of wheat filling Kansas fields will turn gold in a few weeks, beneath the comforting cycle of planting and harvest lies big trouble for the state’s farmers and rural communities. The value of farm ground here and across the country is beginning to fall. That drop can cause havoc for the farmers and ranchers who have borrowed a record amount of debt, as well as the banks that made loans to them and the governments that tax them. It will almost certainly lead to more farm foreclosures and ownership consolidation across Kansas and the country. How much is impossible to know, because it is just starting to unfold. But, so far, no one is saying that a return to the mass foreclosures of the 1980s farm crisis is likely. The state’s farm economy produced about $8.5 billion in 2015, about 6% of the state economy, according to the U.S. Bureau of Economic Analysis.

At the moment, farm foreclosures, loan delinquency and debt-to-asset ratios are near record lows, but conditions are eroding. A recent forecast by Mykel Taylor, a farm economist at Kansas State University, calls for a drop of 30 to 50% from the peak as land prices return to their long-term trend. Others are predicting somewhat less of a drop. Brokers say the decline has already started, with the price for prime Kansas crop ground down about 10% from its peak, while marginal crop land has fallen twice or three times that. Pasture land has not fallen yet, although it is expected to. How fast prices deflate will dictate the level of pain, Taylor said. “People keep asking: ‘Is this like the ’80s? Is this like the ’80s?’ ” she said. “I don’t know, but it’s going to be bad.”

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NATO is an increasingly dangerous entity. It’ll take us to war. That’s its reason to exist.

NATO Moves Ever Closer To Russia’s Borders (RT)

NATO is deploying an additional four battalions of 4,000 troops in Poland and the three Baltic States, according to a report citing US Deputy Secretary of Defense Robert Work. Work confirmed the number of troops to be sent to the border with Russia, the Wall Street Journal reports. He said the reason for the deployment is Russia’s multiple snap military exercises near the Baltics States. “The Russians have been doing a lot of snap exercises right up against the borders, with a lot of troops,” Work said. “From our perspective, we could argue this is extraordinarily provocative behavior.” Although there have already been talks about German troops to be deployed to Lithuania, Berlin is still mulling its participation.

“We are currently reviewing how we can continue or strengthen our engagement on the alliance’s eastern periphery,” Chancellor Angela Merkel said on Friday, in light of a recent poll from the Bertelsmann Foundation that found only 31% of Germans would welcome the idea of German troops defending Poland and the Baltic States. London has not made its mind either, yet is expected to do so before the upcoming NATO summit in Warsaw in July. Ahead of the deployment, NATO officials are also discussing the possibility of making the battalions multinational, combining troops from different countries under the joint NATO command and control system. Moscow has been unhappy with the NATO military buildup at Russia’s borders for some time now.

“NATO military infrastructure is inching closer and closer to Russia’s borders. But when Russia takes action to ensure its security, we are told that Russia is engaging in dangerous maneuvers near NATO borders. In fact, NATO borders are getting closer to Russia, not the opposite,” Russian Foreign Minister Sergey Lavrov told Sweden’s Dagens Nyheter daily. Poland and the Baltic States of Lithuania, Latvia and Estonia have regularly pressed NATO headquarters to beef up the alliance’s presence on their territory. According to the 1997 NATO-Russia Founding Act, the permanent presence of large NATO formations at the Russian border is prohibited. Yet some voices in Brussels are saying that since the NATO troops stationed next to Russia are going to rotate, this kind of military buildup cannot be regarded as a permanent presence.

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How to kill a union in a few easy steps. They don’t even know that’s what they’re doing.

Austria, Germany Press EU To Prolong Border Controls (AFP)

Austria and Germany said on Saturday they were in talks with the European Union’s executive body to extend temporary border controls brought in last year to help stem the migrant flow. The measures – triggered in case of “a serious threat to public policy or internal security” – are due to expire on May 12. “I can confirm that we are having discussions with the EU Commission and our European partners about this,” Austrian interior ministry spokesman Karl-Heinz Grundboeck told AFP. Member states must “be able to continue carrying out controls on their borders,” German Interior Minister Thomas de Maiziere said in a written statement to AFP. “Even if the situation along the Balkan route is currently calm, we are observing the evolution of the situation on the external borders with worry”.

His Austrian counterpart, Wolfgang Sobotka, said checkpoints along the Hungarian border had been reinforced in late April after “a rise in people-smuggling activity”. “The introduction of a coordinated border management system with our neighbouring countries after the [May 12] deadline expires would be the first step in the direction of a joint European solution,” Sobotka said. The remarks came after German media had reported that several EU states were urging Brussels to extend the temporary controls inside the passport-free Schengen zone for at least six months. The EU allowed bloc members to introduce the restrictions after hundreds of thousands of migrants and refugees began trekking up the Balkans from Greece towards western and northern Europe last September.

Austria, Belgium, Denmark, France, Germany and Sweden have all clamped down on their frontiers as the continent battles its biggest migration crisis since the end of World War II. “We request that you put forward a proposal, which will allow those member states who consider it necessary to either extend or introduce the temporary border controls inside Schengen as of May 13,” the six countries said in a letter addressed to the EU, according to German newspaper Die Welt. A source close to the German government told AFP the letter would be sent on Monday.

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Doesn’t anybody have any decency left? Where is the UN?

Newborn Baby Among 99 Dead After Shipwrecks In Mediterranean (G.)

A newborn baby is among 99 people believed to have drowned in two separate shipwrecks off the Libyan coast this weekend, according to survivors who arrived in Italy. Twenty-six survivors were rescued by a commercial vessel after a rubber dinghy in which they were travelling sank in the Mediterranean on Friday, a few hours after departing from Sabratha in Libya. They were transferred to Italian coastguard ships before being brought ashore in Lampedusa, Italy’s southernmost island, according to the International Organization for Migration (IOM). The baby was among 84 people still missing on Saturday..

“The dinghy was taking on water, in very bad conditions. Many people had already fallen in the sea and drowned,” said Flavio Di Giacomo, IOM spokesman in Italy. “They are all very shocked,” Di Giacomo said, adding they would receive psychological support in Lampedusa. The UN refugee agency, UNHCR, said that after taking on water the boat broke into two pieces and 26 people were saved from the sea. Survivors from a second shipwreck arrived in the Sicilian port of Pozzallo on Sunday, after an accident during a search-and-rescue operation the day before. Two bodies were recovered and brought ashore along with eight of about 105 people saved, who were taken to hospital in serious condition.

The shipwrecks are the latest incidents in which hundreds of people have lost their lives in the Mediterranean. Last week, up to 500 people were feared dead after a shipping boat hoping to reach Italy from eastern Libya sank. Forty-one survivors told UNHCR that smugglers had taken them out to sea and tried to move them to a larger, overcrowded boat that then capsized. So far this year, at least 1,360 people have been reported dead or missing after trying to cross the Mediterranean, including the latest two shipwrecks, while more than 182,800 have reached European shores.

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May 012016
 
 May 1, 2016  Posted by at 9:32 am Finance Tagged with: , , , , , , , , , ,  


George N. Barnard Nashville, Tennessee. Rail yard and depot 1864

This is The Biggest Fraud In The History Of The World (SHTF)
China’s Debt Reckoning Cannot Be Deferred Indefinitely (Magnus)
The Cult Of Central Banking Is Dead In The Water (Stockman)
The Real Story Behind The US New Home Sales Collapse (Adler)
Recent Rise In Yen ‘Extremely Worrying’: Japan Finance Minister (AFP)
UK ‘Is In The Throes Of A Housing Crisis’ (G.)
No, Russia Is Not In Decline – At Least Not Any More And Not Yet (FT)
Germany Should Stop Whining About Negative Rates (Economist)
Could Italy Be The Unlikely Saviour Of Project Europe? (PS)
Future Of Scandal-Hit Mitsubishi Motors In Doubt – Again (AFP)
Trump Saves American TV (Brown)
Greece Concludes Agreement With Creditors On Sale Of NPLs (Kath.)
EU Has Made A Mess Of Refugee Reception System In Greece: Oxfam (Kath.)
84 Migrants Missing After Boat Sinks Off Libya’s Coast (AFP)

“..We now exist in an environment where the financial system as a whole has been flipped upside down just to make it function…”

This is The Biggest Fraud In The History Of The World (SHTF)

The stock market may be hovering near all-time highs, but according to Greg Mannarino of Traders Choice that doesn’t mean the valuations are actually real: We exist, beyond any shadow of any doubt, in an environment of absolute fakery where nothing is real… from the prices of assets to what’s occurring here with regard to the big Wall Street banks, the Federal Reserve, interest rates and everything in between. …All of this is being played in a way to keep people believing, once again, that the system is working and will continue to work:

President Obama has suggested that people like Greg Mannarino who are exposing the fraud for what it is are just peddling fiction. And just this week the President argued that he saved the world from a great depression and that the closing credits of the 2008 crash movie “The Big Short” were inaccurate when they claimed that nothing has been done to fundamentally curb the fraud and fix the system under his administration. But as Mannarino notes, the President and his central bank cohorts are making these statements because the system is so fragile that if the public senses even the smallest problem it could derail the entire thing:

“Let’s just look at the stock market… there’s no possible way at this time that these multiples can be justified with regard to what’s occurring here with the price action of the overall market… meanwhile, the market continues to rise. … Nothing is real. I can’t stress this enough… and we’re going to continue to see more fakery… and manipulation and twisting of this entire system… We now exist in an environment where the financial system as a whole has been flipped upside down just to make it function… and that’s very scary. … We’ve never seen anything like this in the history of the world… The Federal Reserve has never been in a situation like this… we are completely in uncharted territory where the world’s central banks have gone negative interest rates… it’s all an illusion to keep the stock market booming.

… Every single asset now… I don’t care what asset… you want to look at currency, debt, housing, metals, the stock market… pick an asset… there’s no price discovery mechanism behind it whatsoever… it’s all fake… it’s all being distorted. … The system is built upon on one premise and that is confidence that it will work… if that confidence is rattled the whole thing will implode… our policy makers are well aware of this… there is collusion between central banks and their respective governments… and it will not stop until it implodes… and what I mean by implode is, correct to fair value.”

And when that confidence is finally lost and the fraud exposed – and it will be as has always been the case throughout history – the destruction to follow will be one for the history books. In a previous interview Mannarino warned that things could get so serious after the bursting of such a massive bubble that millions of people will die on a world-wide scale:

“It’s created a population boom… a population boom has risen in tandem with the debt. It’s incredible. So, when the debt bubble bursts we’re going to get a correction in population. It’s a mathematical certainty. Millions upon millions of people are going to die on a world-wide scale when the debt bubble bursts. And I’m saying when not if… … When resources become more and more scarce we’re going to see countries at war with each other. People will be scrambling… in a worst case scenario… doing everything that they can to survive… to provide for their family and for themselves. There’s no way out of it.”

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“..credit growth is probably running at about 25-30%, or about twice as fast as official data suggest, and roughly four times the growth in money GDP..”

China’s Debt Reckoning Cannot Be Deferred Indefinitely (Magnus)

[..] there is a bit of folklore about the topping out of skyscrapers: the builders’ ceremonial placing of the final beam often heralds the onset of grim economic news, coinciding with the end of a credit cycle that has funded a frenzy of lending for ever-bigger projects. And indeed, as the economy slows markedly, China is increasingly dependent on credit creation. The share of total credit in the economy is approaching 260% and, on current trends, could surpass 300% by 2020 – exceptional for a middle-income country with China’s income per head. The debt build-up must sooner or later end — and when it does it will have a significant impact on the global economy.

Back in 2008, as the western financial crisis spread, China tried to insulate itself with a big credit stimulus programme to counter factory closures and an accompanying return of millions of migrants to the countryside. By 2011 the growth rate had peaked. Its decline was led by a fall in investment in property, then manufacturing. Subsequent stimulus measures have not altered the trend for long but one constant is a relentless build-up in the indebtedness of property companies, state enterprises and local governments. Conventional measures of credit, however, do not fully reflect the growth of total banking assets. Local and provincial governments have been allowed to issue new bonds on yields a bit below bank loans, bought by banks — but they have not paid down more expensive earlier debts to banks as planned.

Banks, moreover, have also increased their lending, often through instruments such as securitised loans, to non-banking financial intermediaries, such as insurance companies, asset managers and security trading firms. When this is taken into account, credit growth is probably running at about 25-30%, or about twice as fast as official data suggest, and roughly four times the growth in money GDP, the cash value of national output. For now, China’s credit surge seems to have stabilised the economy after a sharp slowdown around the turn of the year. The property market has picked up, attracting funds from a stock market that has fallen out of favour with investors after pronounced instability in the middle of last year and early in 2016. The volume of property transactions has risen and prices have rebounded, especially in the biggest cities.

Timing the end of a credit boom is more luck than judgment. There is no question that lenders own bad loans, reckoned unofficially by some banks and credit rating agencies to amount to about 20% of total assets, the equivalent of around 60% of GDP. These will have to be written off or restructured, and the costs allocated to the state, banks, companies or households. Yet in a state-run banking system, where loans can be extended and there are institutional obstacles to realising bad debts, the day of reckoning can be postponed for some time. More likely, the other side of the lenders’ balance sheets, or their liabilities, is where the limits to the credit cycle will appear sooner.

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“..Uncle Sam has gotten $4 trillion of “something for nothing” during the last 16 years, while the Washington politicians and policy apparatchiks were happy to pretend that the “independent” Fed was doing god’s work..”

The Cult Of Central Banking Is Dead In The Water (Stockman)

The Fed has been sitting on the funds rate like some monetary mother hen since December 2008. Once it punts again at the June meeting owing to Brexit worries it will have effectively pegged money market rates at the zero bound for 90 straight months. There has never been a time in financial history when anything close to this happened, including the 1930s. Nor was interest-free money for eight years running ever even imagined in the entire history of monetary thought. So where’s the fire? What monumental emergency justifies this resort to radical monetary intrusion and repression? Alas, there is none. And that’s as in nichts, nada, nope, nothing! There is a structural growth problem, of course. But it has absolutely nothing to do with monetary policy; and it can’t be fixed with cheap money and more debt, anyway.

By contrast, there is no inflation deficiency – even by the Fed’s preferred measure. Indeed, the very idea of a central bank pumping furiously to generate more inflation comes straight from the archives of crank economics. The following two graphs dramatize the cargo cult essence of today’s Keynesian central banking regime. Since the year 2000 when monetary repression began in earnest, the balance sheet of the Fed has risen by 800%, while the amount of labor hours used in the US economy has increased by 2%. At a ratio of 400:1 you can’t even try to argue the counterfactual. That is, there is no amount of money printing that could have ameliorated the “no growth” economy symbolized by flat-lining labor hours.

 

Owing to the recency bias that dominates mainstream news and commentary, the massive expansion of the Fed’s balance sheet depicted above goes unnoted and unremarked, as if it were always part of the financial landscape. In fact, however, it is something radically new under the sun; it’s the footprint of a monetary fraud breathtaking in its magnitude. In essence, during the last 15 years the Fed has gifted the US economy with a $4 trillion free lunch. Uncle Sam bought $4 trillion worth of weapons, highways, government salaries and contractual services but did not pay for them by extracting an equal amount of financing from taxes or tapping the private savings pool, and thereby “crowding out” other investments.

Instead, Uncle Sam “bridge financed” these expenditures on real goods and services by issuing US treasury bonds on a interim basis to clear his checking account. But these expenses were then permanently funded by fiat credits conjured from thin air by the Fed when it did the “takeout” financing. Central bank purchase of government bonds in this manner is otherwise and cosmetically known as “quantitative easing” (QE), but it’s fraud all the same. In essence, Uncle Sam has gotten $4 trillion of “something for nothing” during the last 16 years, while the Washington politicians and policy apparatchiks were happy to pretend that the “independent” Fed was doing god’s work of catalyzing, coaxing and stimulating more jobs and growth out of the US economy. No it wasn’t! What it was actually doing was not stimulating the main street economy, but falsifying and inflating the price of financial assets.

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“ZIRP has enabled corporate CEOs to game the stock market to massively increase their own pay while encouraging them to cut worker salaries and shift higher paying jobs overseas.”

The Real Story Behind US New Home Sales Collapse (Adler)

Comparing the growth in the number of full time jobs versus the growth in new home sales starkly illustrates both the horrible quality of the new jobs, and how badly ZIRP has served the US economy. Growth in new home sales has always been dependent on growth in full time jobs. For 38 years until the housing bubble peaked in 2006, home sales and full time jobs always trended together, subject to normal cyclical swings. With the exception of 1981-83 when Paul Volcker pushed rates into the stratosphere, new home sales always fluctuated between 550 and 1,100 sales per million full time workers in the month of March. But in the housing crash in 2007-09 sales fell to a low of 276 per million full time workers. Since then the number of full time jobs has recovered to greater than the peak reached in 2007. In spite of that, new home sales per million workers remain at depression levels.

With 30 year mortgage rates now at 3.6% sales are lower today than they were when mortgage rates were above 17% in 1982. Sales have never reached 400 sales per million workers in spite of the recovery in the number of jobs, in spite of ZIRP, in spite of mortgage rates often under 4%. ZIRP has actually made the problem worse. It has caused raging housing inflation which has caused median monthly mortgage payments for new homes to rise by 20% since 2009. ZIRP has enabled corporate CEOs to game the stock market to massively increase their own pay while encouraging them to cut worker salaries and shift higher paying jobs overseas. That leaves the US economy to create only low skill, low pay jobs that do not pay enough for workers to be able to purchase new homes. The perverse incentives of ZIRP are why the housing industry languishes at depression levels.

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At WHAT point does WHO become a currency manipulator? The US issued a warning, also to Japan, this week. But Tokyo is being taken to task by the markets. The question becomes: what will seal the fate of Abenomics? A high yen or a low one?

Recent Rise In Yen ‘Extremely Worrying’: Japan Finance Minister (AFP)

Japan’s finance minister said late Saturday the recent sharp rise in the yen is “extremely worrying”, adding Tokyo will take action when necessary. The remarks, which suggest Tokyo’s possible market intervention, came after the Japanese unit surged to an 18-month high against the dollar in New York Friday. It extended the previous day’s rally, which was boosted by a surprising monetary decision made by the BoJ. On Thursday, the central bank shocked markets by failing to provide more stimulus, confounding expectations it would act after a double earthquake and a string of weak readings on the world’s number three economy. The dollar tumbled to 106.31 yen in New York Friday, its lowest level since October 2014, from 108.11 yen. The greenback had bought 111.78 yen in Tokyo before the BoJ announcement on Thursday.

“The yen strengthened by five yen in two days. Obviously one-sided and biased, so-called speculative moves are seen behind it,” Japanese Finance Minister Taro Aso told reporters. “It is extremely worrying,” he said. The finance minister left on a trip, which will also take him to an annual Asian Development Bank meeting in Germany. “Tokyo will continue watching the market trends carefully and take actions when necessary,” he added. A strong currency is damaging for Japan’s exporting giants, such as Toyota and Sony, as it makes their goods more expensive overseas and shrinks the value of repatriated profits. Aso has reiterated that Japan could intervene in forex markets to stem the unit’s steep rise, saying moves to halt the currency’s “one-sided, speculative” rally would not breach a G20 agreement to avoid competitive currency devaluations.

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You don’t say… Who figured that out?

UK ‘Is In The Throes Of A Housing Crisis’ (G.)

David Cameron’s pledge to build a property-owning democracy is called into serious question by a landmark survey revealing that almost four in 10 of those who do not own a home believe they will never be able to do so. According to an exclusive poll for the Observer on attitudes to British housing, 69% of people think the country is “in the throes of a housing crisis”. A staggering 71% of aspiring property owners doubt their ability to buy a home without financial help from family members. More than two-thirds (67%) would like to buy their own home “one day”, while 37% believe buying will remain out of their reach for good. A further 26% think it will take them up to five years. With affordable homes in short supply and demand for social housing rising, more than half of Britons cite immigration and a glut of foreign investment in UK property as factors driving prices beyond reach.

The findings cast doubt on the prime minister’s claim before last year’s general election that Tory housing policies would transform “generation rent” into “generation buy”. In April last year, as he launched plans to force local authorities to sell valuable properties to fund new “affordable homes”, Cameron said: “The dream of a property-owning democracy is alive and well and we will help you fulfil it.” The poll – which found that 58% of people want more, not less, social housing as a way to ease the crisis – comes as the government’s highly controversial housing and planning bill returns to the Commons on Tuesday. The bill will force councils to sell much of their social housing and curb lifelong council tenancies, introducing “pay to stay” rules that will force better-off council tenants to pay rents closer to market levels.

Described by housing experts as the beginning of the end of social housing, the bill has been savaged by cross-party groups in the Lords. They have inflicted a string of defeats on ministers and forced numerous concessions. The government’s flagship plan for “starter homes” has also been widely attacked on the grounds that the properties – which in London will cost up to £450,000 – will not be affordable. With local elections and the London mayoral election on Thursday, ministers now face the dilemma of whether to back down and accept many of the Lords’ amendments to the bill or face legislative deadlock.

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There is no credible news about Russia left in the west.

No, Russia Is Not In Decline – At Least Not Any More And Not Yet (FT)

A survey of recent writings on Russia by western scholars reveals a widely-held view that the largest of the 15 post-Soviet republics has continued to decline in the 21st century. Yet an examination of the data suggests that Russia has actually risen in comparison with some of its western competitors. Neil Ferguson, the British, Harvard-based historian, wrote in 2011 that Vladimir Putin’s Russia was in decline and “on its way to global irrelevance.” His Harvard colleagues Joseph Nye and Stephen Walt hold similar views. “Russia is in long-term decline,” Nye wrote in April 2015; also last year, Walt wrote of Russia’s decline at least twice. Other western thinkers who have pronounced Russia’s decline in the 21st century include John Mearsheimer of the University of Chicago, Ian Bremmer of Eurasia Group, Nicholas Burns of Harvard University and Stephen Blank of the American Foreign Policy Council.

Others go further. Alexander Motyl of Rutgers University recently wrote of a “coming Russian collapse”. Lilia Shevtsova, a Russian scholar affiliated with the Brookings Institution, believes the collapse has already begun. But is Russia really in decline, as western scholars claim? A comparison of its performance with the world as a whole or with the west’s leading economies suggests that the claim that post-Communist Russia has continued its decline into the 21st century is highly contestable at the very least. I have compared Russia with the US, the UK, France, Germany and Italy – the west’s biggest economy, western Europe’s four biggest and all of the west’s nuclear powers – in the period 1999 to 2015 (with some exceptions when data is not available). I relied on data supplied by the World Bank, the Stockholm International Peace Research Institute and the World Steel Association, turning to data from national governments only in the absence of data from the three organisations.

One traditional way of measuring nations’ power relative to each other is to compare their GDP. By this measure, Russia gained economically on all of its competitors as well as on the world as a whole in 1999-2015. Russian GDP was equal to less than 5% of US GDP in 1999. That share grew to 6% in 2015, a 36% increase. Over the same period, Russia’s share of global GDP increased by 23%, from 1.32% in 1999 to 1.6% in 2015. Meanwhile, the US, UK, French, German and Italian shares in global GDP declined by 10%, 11%, 19%, 20% and 32%, respectively. It is well known that the Russian economy has been declining since 2014. According to the World Bank, it is poised to contract by 1% yet again in 2016 before it resumes growth. However, this projected decline will not erase the cumulative gains that the Russian economy has made since 1999 against those of the US, UK, France, Germany and Italy and against the world as a whole.

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Germany doesn’t want a union, it wants a sales market.

Germany Should Stop Whining About Negative Rates (Economist)

Germany and the Netherlands are usually great supporters of central-bank independence. In the 1990s Germany blocked France’s push for a political say over monetary policy in the new ECB. The Dutchman who first headed that bank, Wim Duisenberg, said that it might be normal for politicians to express views on monetary policy, but it would be abnormal for central bankers to listen to them. That was then. Now German and Dutch politicians are trying to browbeat Mario Draghi, the ECB’s current president, into ending the bank’s policy of negative interest rates. The German finance minister, Wolfgang Schäuble, accused Mr Draghi of causing “extraordinary problems” for his country’s financial sector; wilder yet, he also pinned on the ECB half of the blame for the rise of the populist Alternative for Germany (AfD) party.

Both countries’ politicians attack low rates as a conspiracy to punish northern European savers and let southern European borrowers off the hook. ECB autonomy was sacred when rates suited Germany; now that rates do not fit the bill, and are imposed by an Italian to boot, it is another matter. The critics are not just hypocritical. They are partly responsible—let’s say 50% to blame—for the mess. As Mr Draghi has pointed out, his mandate is to raise the euro zone’s inflation rate back towards 2%. It is currently at zero, and periodically dips into negative territory. There is a legitimate debate to be had about how far a negative-interest-rate policy can go. The banks are unwilling to pass on negative rates to depositors, which means their own earnings are dented. And yes, savers are undoubtedly suffering at the moment. But raising rates would squash the recovery, and with it any chance of a normalisation of monetary policy.

The ECB’s policies of ultra-low rates and quantitative easing (printing money to buy bonds) are the same as those used by other central banks in the rich world since the onset of the financial crisis. Even the Bundesbank, whose allergy to inflation largely explains why the ECB was slower to embrace unconventional monetary policy than its peers, has felt compelled to defend Mr Draghi from attacks in Germany. The fundamental reason for Europe’s low interest rates and bond yields is the fragility of its economy. Its unemployment rate is stuck at 10%. While the ECB has been doing what it can to press down the accelerator, however, the austerity preached by the likes of the German and Dutch governments has slammed on the brakes. For years, Mr Draghi has been saying that monetary policy alone cannot speed up the economy, and that creditworthy governments must use fiscal policy as well, ideally by raising public investment.

If Mr Schäuble wants higher yields for German savers, he should be spending more money. Instead, his government is running a budget surplus. A hesitation to spend might be understandable if it were difficult for the German government to find good investment opportunities. But Germany has suffered from low infrastructure spending for decades. Investment by municipalities has fallen by about half since 1991, according to a 2015 report by the German Institute for Economic Research; since 2003 it has failed even to keep pace with the deterioration of infrastructure.

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Kaletsky’s dreaming in technicolor: “..The enormous programme of quantitative easing that Draghi pushed through, against German opposition, has saved the euro…”

Could Italy Be The Unlikely Saviour Of Project Europe? (PS)

As the EU begins to disintegrate, who can provide the leadership to save it? German chancellor Angela Merkel is widely credited with finally answering Henry Kissinger’s famous question about the Western alliance: “What is the phone number for Europe?” But if Europe’s phone number has a German dialling code, it goes through to an automated answer: “Nein zu Allem.” This phrase –“No to everything” –is how Mario Draghi, the ECB president, recently described the standard German response to all economic initiatives aimed at strengthening Europe. A classic case was Merkel’s veto of a proposal by Italian prime minister Matteo Renzi to fund refugee programmes in Europe, North Africa, and Turkey through an issue of EU bonds, an efficient and low-cost idea also advanced by leading financiers such as George Soros.

Merkel’s high-handed refusal even to consider broader European interests if these threaten her domestic popularity has become a recurring nightmare for other EU leaders. This refusal underpins not only her economic and immigration policies, but also her bullying of Greece, her support for coal subsidies, her backing of German carmakers over diesel emissions, her kowtowing to Turkey on press freedom, and her mismanagement of the Minsk agreement in Ukraine. In short, Merkel has done more to damage the EU than any living politician, while constantly proclaiming her passion for “the European project”. But where can a Europe disillusioned with German leadership now turn? The obvious candidates will not or cannot take on the role: Britain has excluded itself; France is paralysed until next year’s presidential election and possibly beyond; and Spain cannot even form a government.

That leaves Italy, a country that, having dominated Europe’s politics and culture for most of its history, is now treated as “peripheral”. But Italy is resuming its historic role as a source of Europe’s best ideas and leadership in politics, and also, most surprisingly, in economics. Draghi’s transformation of the ECB into the world’s most creative and proactive central bank is the clearest example of this. The enormous programme of quantitative easing that Draghi pushed through, against German opposition, has saved the euro by circumventing the Maastricht Treaty’s rules against monetising or mutualising government debts. Last month, Draghi became the first central banker to take seriously the idea of helicopter money – the direct distribution of newly created money from the central bank to eurozone residents.

Germany’s leaders have reacted furiously and are now subjecting Draghi to nationalistic personal attacks. Less visibly, Italy has also led a quiet rebellion against the pre-Keynesian economics of the German government and the European commission. In EU councils and again at this month’s IMF meeting in Washington, DC, Pier Carlo Padoan, Italy’s finance minister, presented the case for fiscal stimulus more strongly and coherently than any other EU leader. More important, Padoan has started to implement fiscal stimulus by cutting taxes and maintaining public spending plans, in defiance of German and EU commission demands to tighten his budget. As a result, consumer and business confidence in Italy have rebounded to the highest level in 15 years, credit conditions have improved, and Italy is the only G7 country expected by the IMF to grow faster in 2016 than 2015 (albeit still at an inadequate 1% rate).

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“It would be silly to buy a Mitsubishi car after this..”

Future Of Scandal-Hit Mitsubishi Motors In Doubt – Again (AFP)

Sales are falling off a cliff. Its reputation is in tatters. And even its top executive is talking about whether the automaker will survive. Mitsubishi Motors’ future is hanging in the balance for the second time in a decade after a bombshell admission that it has been cheating on fuel-economy tests for years. The crisis is threatening to put the company into the ditch permanently, but some analysts think the vast web of shareholdings among Japanese firms may just save it from the scrap yard. “I really think the future of Mitsubishi Motors is grim,” said Hideyuki Kobayashi, a business professor at Hitotsubashi University, who authored a book about the company’s struggles with an earlier cover-up. “It would be silly to buy a Mitsubishi car after this (scandal). This isn’t the first time this has happened.”

In 2005, the maker of the Outlander SUV and Lancer cars was pulled back from the brink of bankruptcy after it was discovered that it covered up vehicle defects that caused fatal accidents. The vast Mitsubishi group of companies stepped in with a series of bailouts, saving the embattled firm. But it is not clear if they would be so willing to help this time around as the automaker faces possibly huge fines, lawsuits and customer compensation costs. The scandal has shone a light on the cozy relationships between Japanese firms – including the big equity stakes they hold in each other – which have come under renewed scrutiny in recent years.

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Lowest common denominator.

Trump Saves American TV (Brown)

My friends in the TV news business are in a state of despair about Donald Trump, even as their bosses in the boardroom are giddy over what he’s doing for their once sagging ratings. “It feels like it’s over,” one old friend from my television days told me recently. Any hope of practicing real journalism on TV is really, finally finished. “Look, we’ve always done a lot of stupid shit to get ratings. But now it’s like we’ve just given up and literally handed over control hoping he’ll save us. It’s pathetic, and I feel like hell.” Said another friend covering the presidential campaign for cable news, “I am swilling antidepressants trying to figure out what to do with my life when this is over.” I’ve been there, and I sure am sympathetic.

When I left cable news in 2010 after 14 years as a correspondent and anchor for NBC News and CNN, this kind of ratings pressure was a big reason why (and I don’t take for granted that I had the luxury of being able to walk away). I was not so interested in night-after-night coverage of Michael Jackson’s death or Britney Spears’ latest breakdown—topics that were “breaking news” at the time. And yes, as my friend reminded me, we did “stupid shit” to get the numbers up when it came to political coverage then, too. (Anyone remember the correspondent’s hologram that appeared on set during CNN’s 2008 election coverage?) But it was nothing like what we’re seeing today. I really would like to blame Trump. But everything he is doing is with TV news’ full acquiescence. Trump doesn’t force the networks to show his rallies live rather than do real reporting.

Nor does he force anyone to accept his phone calls rather than demand that he do a face-to-face interview that would be a greater risk for him. TV news has largely given Trump editorial control. It is driven by a hunger for ratings—and the people who run the networks and the news channels are only too happy to make that Faustian bargain. Which is why you’ll see endless variations of this banner, one I saw all three cable networks put up in a single day: “Breaking news: Trump speaks for first time since Wisconsin loss.” In all these scenes, the TV reporter just stands there, off camera, essentially useless. The order doesn’t need to be stated. It’s understood in the newsroom: Air the Trump rallies live and uninterrupted. He may say something crazy; he often does, and it’s always great television.

This must be such a relief for the TV executives managing a business in decline, suffering from a thousand cuts from social media and other new platforms. Trump arrived on the scene as a kind of manna from hell. I admit I have been surprised by the public candor about this bounty. A “beaming” Jeff Zucker, president of CNN Worldwide, told New York Times media columnist Jim Rutenberg, “These numbers are crazy—crazy.” But if their bosses are frank about the great ratings, some of my friends left at the cable networks are in various degrees of denial. “Give me a break,” one told me. “You can’t put this on us. Reality has changed because of technology. Look at the White House. They’re basically running their own news organization. They bypass us every day. We’re just trying to keep up.” And then there’s this attempt to put the best face on things, which is the most universal comment I hear: “At least this shows how much we still matter.”

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Anything the EU agrees to can be seen as inconsequential.

Greece Concludes Agreement With Creditors On Sale Of NPLs (Kath.)

An agreement between Greece and its lenders will lead to the vast majority of non-performing loans (NPLs) linked to primary residences with a taxable value under 140,000 euros being protected from sale until 2018, Economy Ministry sources have said. The government said on Saturday that the framework for the sale to distressed debt fund of overdue bank loans had been agreed, a necessary condition for the current bailout review to be concluded. According to the Economy Ministry, income criteria will not apply to the primary residence-backed NPLs that will be excluded from sale.

When coupled with the 140,000-euro “objective value” ceiling, this means that 94% of mortgages linked to main homes will be exempt from sale, the government says. The ministry added that the homeowners whose loans will be sold by banks will not experience any major change. The organizations that buy the loans will be required to use debt collection agencies that are registered in Greece and which have been licensed by the Bank of Greece.

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And on purpose too.

EU Has Made A Mess Of Refugee Reception System In Greece: Oxfam (Kath.)

The EU is failing to deliver a fair and safe system for receiving people in Greece, according to charity group Oxfam. The Greek government’s limited capacity and the pressure to meet the terms of the EU-Turkey agreement has led to refugees and migrants being kept in poor conditions, stressed the humanitarian organization in a statement on Friday. “Europe has created this mess and it needs to fix it in a way that respects people’s rights and dignity,” said Giovanni Riccardi Candiani, Oxfam’s representative in Greece. “The EU says it champions the rights of asylum-seekers beyond its borders but these rights are not being respected within EU countries.” Oxfam highlighted problems at the hotspots on Lesvos, where there have been riots in the past few days.

“Moria center is now very overcrowded, holding more than 3,000 people. Non-Syrians are unable to access asylum processes and about 80 unaccompanied children are among those being held,” said the humanitarian organization. “Nearby Kara Tepe camp, which has freedom of movement and provides care for vulnerable people such as unaccompanied children, pregnant women and the elderly, is almost full, leaving people in need of special care and support stranded at Moria center,” added Oxfam. The organization said it is working at six sites across Greece: Kara Tepe on Lesbos island, and in Katsika, Doliana, Filipiada, Tsepelovo and Konista camps in North-West Greece. Oxfam suspended its presence at Moria after the EU-Turkey deal was agreed and the site was converted into a closed facility.

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Europe’s shame continues.

84 Migrants Missing After Boat Sinks Off Libya’s Coast (AFP)

84 migrants are still missing after an inflatable craft sank off the coast of Libya, according to survivors cited by the International Organization for Migration (IOM) on Saturday. Twenty-six people were rescued from the boat which sank on Friday and were questioned overnight. “According to testimonies gathered by IOM in Lampedusa 84 people went missing,” IOM spokesperson in Italy Flavio Di Giacomo wrote on his Twitter feed. Di Giacomo told AFP that the survivors indicated 110 people, all from assorted west African states, had embarked in Libya. In an email, he added that the vessel “was in a very bad state, was taking on water and many people fell into the water and drowned”.

“Ten fell very rapidly and several others just minutes later.” Earlier Saturday, Italy’s coastguard said an Italian cargo ship had rescued 26 migrants from a flimsy boat sinking off the coast of Libya but voiced fears that tens more could be missing. The coastguard received a call from a satellite phone late Friday that helped locate the stricken inflatable and called on the merchant ship to make a detour to the area about four miles (seven kilometres) off the Libyan coast near Sabratha. Rough seas and waves topping two metres (seven feet) hampered attempts to find any other survivors.

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Apr 282016
 
 April 28, 2016  Posted by at 9:01 am Finance Tagged with: , , , , , , , , , , ,  


G. G. Bain Goose Creek, houses on the water, Jamaica Bay, Long Island 1910

The European Union Always Was A CIA Project (AEP)
Yen Surges, Nikkei Plunges As BOJ Keeps Policy Steady (CNBC)
Japan Consumer Prices Fall At Fastest Pace In 3 Years (R.)
America’s Earnings Recession Just Got Worse (CNN)
America’s Trade Deficit Begins at Home (Roach)
China Trades Enough Cotton in One Day to Make Jeans for Everyone (BBG)
IMF Warns Chinese Response To Debt Needs To Be More Comprehensive (FT)
China Struggles As Oil Losses Climb (EM)
US Oil Woes Start To Hit Workers Hard (WSJ)
Dan Loeb: We’re In The ‘First Inning’ Of A ‘Washout’ In Hedge Funds (CNBC)
The Bad Smell Hovering Over The Global Economy (G.)
Europe’s Securitisation Industry’s Sales At Lowest For 5 Years (FT)
Merkel Attacks Draghi Over Interest Rates Policy, Cites Risks To Banks (R.)
Tusk Rejects Tsipras Request For EU Summit On Greece Bailout (G.)
Athens Under Pressure To Clear Piraeus Refugee Camp Before Tourists Arrive (G.)
More Than A Million People In UK Living In Destitution (G.)
Papua New Guinea To Close Aussie Refugee Detention Camp (AFP)

Ambrose dives into history. A shame he can’t see beyond the Cold War when assessing Russia.

The European Union Always Was A CIA Project (AEP)

Brexiteers should have been prepared for the shattering intervention of the US. The European Union always was an American project. It was Washington that drove European integration in the late 1940s, and funded it covertly under the Truman, Eisenhower, Kennedy, Johnson, and Nixon administrations. While irritated at times, the US has relied on the EU ever since as the anchor to American regional interests alongside NATO. There has never been a divide-and-rule strategy. The eurosceptic camp has been strangely blind to this, somehow supposing that powerful forces across the Atlantic are egging on British secession, and will hail them as liberators. The anti-Brussels movement in France – and to a lesser extent in Italy and Germany, and among the Nordic Left – works from the opposite premise, that the EU is essentially an instrument of Anglo-Saxon power and ‘capitalisme sauvage’.

France’s Marine Le Pen is trenchantly anti-American. She rails against dollar supremacy. Her Front National relies on funding from Russian banks linked to Vladimir Putin. Like it or not, this is at least is strategically coherent. The Schuman Declaration that set the tone of Franco-German reconciliation – and would lead by stages to the European Community – was cooked up by the US Secretary of State Dean Acheson at a meeting in Foggy Bottom. “It all began in Washington,” said Robert Schuman’s chief of staff. It was the Truman administration that browbeat the French to reach a modus vivendi with Germany in the early post-War years, even threatening to cut off US Marshall aid at a furious meeting with recalcitrant French leaders they resisted in September 1950.

Truman’s motive was obvious. The Yalta settlement with the Soviet Union was breaking down. He wanted a united front to deter the Kremlin from further aggrandizement after Stalin gobbled up Czechoslovakia, doubly so after Communist North Korea crossed the 38th Parallel and invaded the South. For British eurosceptics, Jean Monnet looms large in the federalist pantheon, the eminence grise of supranational villainy. Few are aware that he spent much of his life in America, and served as war-time eyes and ears of Franklin Roosevelt. General Charles de Gaulle thought him an American agent, as indeed he was in a loose sense. Eric Roussel’s biography of Monnet reveals how he worked hand in glove with successive administrations. It is odd that this magisterial 1000-page study has never been translated into English since it is the best work ever written about the origins of the EU.

Nor are many aware of declassified documents from the State Department archives showing that US intelligence funded the European movement secretly for decades, and worked aggressively behind the scenes to push Britain into the project. As this newspaper first reported when the treasure became available, one memorandum dated July 26, 1950, reveals a campaign to promote a full-fledged European parliament. It is signed by Gen William J Donovan, head of the American wartime Office of Strategic Services, precursor of the CIA. The key CIA front was the American Committee for a United Europe (ACUE), chaired by Donovan. Another document shows that it provided 53.5% of the European movement’s funds in 1958. The board included Walter Bedell Smith and Allen Dulles, CIA directors in the Fifties, and a caste of ex-OSS officials who moved in and out of the CIA.

Papers show that it treated some of the EU’s ‘founding fathers’ as hired hands, and actively prevented them finding alternative funding that would have broken reliance on Washington. There is nothing particularly wicked about this. The US acted astutely in the context of the Cold War. The political reconstruction of Europe was a roaring success. There were horrible misjudgments along the way, of course. A memo dated June 11, 1965, instructs the vice-president of the European Community to pursue monetary union by stealth, suppressing debate until the “adoption of such proposals would become virtually inescapable”. This was too clever by half, as we can see today from debt-deflation traps and mass unemployment across southern Europe.

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Japan cannot take an ever rising yen. It will need to plummet, and quite soon.

Yen Surges, Nikkei Plunges As BOJ Keeps Policy Steady (CNBC)

Japanese shares sold off and the yen surged against the dollar Thursday after the Bank of Japan’s (BOJ) decision to keep monetary policy steady disappointed a section of the market betting on further stimulus. The benchmark Nikkei 225 was down 3.24%, compared to a 1.41% gain before the decision. The Topix index fell 2.15%. The yen moved sharply higher, with the dollar/yen pair dropping 2.10% to 109.11 as of 12:45 p.m. HK/SIN, compared with the 111 level it traded at before the decision. Australia’s ASX 200 was up 0.54%, boosted by advances in the energy and materials sub-indexes. In South Korea, the Kospi fell 0.61%. In Hong Kong, the Hang Seng index was up 0.50%. Chinese mainland markets retreated, with the Shanghai composite down 0.68%, while the Shenzhen composite dropped 1.04%.

Following the BOJ’s decision and the yen’s strength, major Japanese exporters saw their shares tumble, with Toyota, Nissan and Honda down between 2.74 and 3.55%. A stronger yen is usually a negative for exporters as it reduces their overseas profits when converted into local currency. “However, in the last ten years, Japan’s exporters’ currency sensitivity has been reduced,” Masakazu Takeda at Hennessy Japan Fund told CNBC’s “Capital Connection.” Takeda said as an example, every time the dollar weakened by 10 yen, Toyota’s operating profits declined by about 13%. “That’s down from 20% ten years ago,” he said, adding, “Companies have been making efforts to reduce the currency sensitivity.” Japanese banking stocks also sold off sharply, with shares of Mitsubishi UFJ down 5.06%, SMFG down 5.21% and Nomura tumbling 9.41%. Nikkei index heavyweight Fast Retailing sold off 5.05%.

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Where Abenomics fails most spectacularly: “..Household spending in March fell 5.3% from a year earlier..” Note: this was reported prior to the BOJ decision to hold off on stimulus.

Japan Consumer Prices Fall At Fastest Pace In 3 Years (R.)

Japan’s consumer prices fell in March at the fastest pace in three years and household spending declined at the fastest pace in a year, keeping the Bank of Japan under pressure to implement more stimulus to support the economy. Separate data showed industrial output rose more than expected and labor demand rose to the highest in two decades, but renewed worries about weak private consumption are likely to temper any optimism about the economy. The BOJ is likely to debate expanding monetary stimulus at a policy meeting ending later on Thursday, as sluggish global demand hurts exports and weak wage growth undermines private consumption, sources have told Reuters.. “Oil prices falls and the waning effect from a weak yen pushed down core CPI,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“We expect the BOJ will ease policy today. It will probably be difficult politically for the BOJ to further cut negative interest rates, so we expect the central bank will focus on qualitative easing such as increasing ETF buying.” The core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, fell 0.3% in March from a year earlier, more than the median forecast for a 0.2% annual decline. That marked the fastest decline since April 2013 due to lower prices for gasoline and slowing gains in prices for durable goods and overseas travel. The core-core CPI, which excludes food and energy, rose 0.7% in the year to March, slower than a 0.8% annual increase in the previous month. Household spending in March fell 5.3% from a year earlier due to lower spending on clothes, leisure activities and gasoline. That was more than the median estimate for a 4.2% annual decline and marked the fastest decline since March 2015.

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It’s not just Apple.

America’s Earnings Recession Just Got Worse (CNN)

Apple, Chipotle and Twitter each got thumped Wednesday after reporting weak or disappointing earnings. Twitter and Chipotle have their own distinct failures, but Apple, like many, is also a victim of the global slowdown. Overall, S&P 500 earnings so far this quarter are down 8%. That marks the third quarterly decline in a row and the worst since 2009, according to S&P Global Market Intelligence. Weak global growth is closing consumers’ wallets, while the strong dollar is only making iPhones and other American goods more expensive for foreign buyers. Add on still-low oil prices and Corporate America is facing major headwinds. “It’s like these companies are trying to play basketball but the tar is melting and sticking to their sneaks. Not fun to watch,” says Jack Kramer, co-founder of MarketSnacks, a financial newsletter.

Apple’s stock quickly fell more than 7% when markets opened Wednesday after it revealed its first annual sales growth decline since 2003. Reeling from its E. coli scare late last year, Chipotle reported its first quarterly loss ever and its stock dropped about 5%. And Twitter’s stock spiraled 15% lower on Wednesday after its results missed estimates. They’re not alone. Big oil, tech and other former bull market studs like Starbucks are getting burned this quarter too. Earnings for energy companies are down a whopping 110% compared to a year ago. Consider this: seven of the 10 major sectors in the S&P 500 are in the red so far this quarter. A year ago, only two sectors suffered profit drops, according to S&P. Tech companies’ earnings are down nearly 6% this quarter. Embodying the trend is Google. It got pounded by the strong dollar, which hurt overseas sales. Microsoft also lost overseas revenue due to the strong dollar.

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Stephen Roach says Americans should save more. But the entire economy still ‘stands’ exactly because they either don’t or can’t.

America’s Trade Deficit Begins at Home (Roach)

Thanks to fear mongering on the US presidential campaign trail, the trade debate and its impact on American workers is being distorted at both ends of the political spectrum. From China-bashing on the right to the backlash against the Trans-Pacific Partnership (TPP) on the left, politicians of both parties have mischaracterized foreign trade as America’s greatest economic threat. In 2015, the United States had trade deficits with 101 countries – a multilateral trade deficit in the jargon of economics. But this cannot be pinned on one or two “bad actors,” as politicians invariably put it. Yes, China – everyone’s favorite scapegoat – accounts for the biggest portion of this imbalance. But the combined deficits of the other 100 countries are even larger.

What the candidates won’t tell the American people is that the trade deficit and the pressures it places on hard-pressed middle-class workers stem from problems made at home. In fact, the real reason the US has such a massive multilateral trade deficit is that Americans don’t save. Total US saving – the sum total of the saving of families, businesses, and the government sector – amounted to just 2.6% of national income in the fourth quarter of 2015. That is a 0.6-percentage-point drop from a year earlier and less than half the 6.3% average that prevailed during the final three decades of the twentieth century. Any basic economics course stresses the ironclad accounting identity that saving must equal investment at each and every point in time. Without saving, investing in the future is all but impossible.

And yet that’s the position in which the US currently finds itself. Indeed, the saving numbers cited above are “net” of depreciation – meaning that they measure the saving available to fund new capacity rather than the replacement of worn-out facilities. Unfortunately, that is precisely what America is lacking. So why is this relevant for the trade debate? In order to keep growing, the US must import surplus saving from abroad. As the world’s greatest economic power and issuer of what is essentially the global reserve currency, America has had no trouble – at least not yet – attracting the foreign capital it needs to compensate for a shortfall of domestic saving. But there is a critical twist: To import foreign saving, the US must run a massive international balance-of-payments deficit.

The mirror image of America’s saving shortfall is its current-account deficit, which has averaged 2.6% of GDP since 1980. It is this chronic current-account gap that drives the multilateral trade deficit with 101 countries. To borrow from abroad, America must give its trading partners something in return for their capital: US demand for products made overseas.

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Some day soon we’ll hear a very loud bang in the Chinese commodities craze. It has effectively turned exchanges into bookmakers. Many ‘investors’ don’t know what they’re buying, they’re just afraid -again- of being left behind.

China Trades Enough Cotton in One Day to Make Jeans for Everyone (BBG)

It’s not just metals caught up in China’s commodity fever. The equivalent of 41 million bales of cotton traded in a single day on the Zhengzhou Commodity Exchange last week, the most in more than five years and enough to make almost 9 billion pairs of jeans, or at least one for every person on the planet. Prices that had slumped to the lowest on record in February surged almost 19% in the four days leading up to the trading spike on Friday. Traders have piled in to Chinese commodity markets, sending volumes of everything from steel to coking coal soaring and prompting exchanges to boost margins and fees or issue warnings to investors. The surge in trading is reminiscent of last year’s equities rally that boosted the stock market before a rout erased $5 trillion. China is the world’s largest consumer of cotton and second-biggest producer.

“Record low levels in February and March sparked buying interest from both inside and outside of the cotton industry and also triggered speculation, which resulted in mounting bets in Zhengzhou futures,” said Liu Qiannan at Galaxy Futures. “With massive investment and encouragement from the crazy steel and iron ore market in China, sentiment then turned to bullish from bearish.” More than 3.6 million contracts of 5 metric tons apiece traded in Zhengzhou on Friday. With Chinese exchanges double counting volume to account for the long and short side of a trade, that’s still about 9 million tons, or 41 million bales. One bale can make 215 pairs of jeans, according to the National Cotton Council of America. On the same day, about 1.6 billion pounds traded on ICE Futures U.S. in New York. That’s about 3.3 million bales, or more than 700 million pairs of jeans, enough to dress only the U.S., Brazil and Japan in denim.

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Hollow rhetoric (since there’s no solution), but it does confirm once again how dire China’s situation is : “..one in six of the business loans on Chinese banks’ books — was owed by companies who brought in less in revenues than they owed in interest payments alone.”

IMF Warns Chinese Response To Debt Needs To Be More Comprehensive (FT)

China’s leaders need to look beyond the current solutions being floated to tackle the country’s mounting corporate debt problems and come up with a bigger plan to do so, the IMF’s top China expert has warned. The IMF has been expressing growing concern about China’s debt issues and pushing for an urgent response by Beijing to what the fund sees as a serious problem for the Chinese economy. It warned in a report earlier this month that $1.3tn in corporate debt — or almost one in six of the business loans on Chinese banks’ books — was owed by companies who brought in less in revenues than they owed in interest payments alone.

In a paper published on Tuesday, James Daniel, the fund’s China mission chief, and two co-authors, went further and warned that Beijing needed a comprehensive strategy to tackle the problem. They warned that the two main responses Beijing was planning to the problem — debt-for-equity swaps and the securitisation of non-performing loans — could in fact make the problem worse if underlying issues were not dealt with. “Converting NPLs into equity or securitising them are techniques that can play a role in addressing these problems and have been used successfully by some other countries,” Mr Daniel and his co-authors wrote.

“But they are not comprehensive solutions by themselves — indeed, they could worsen the problem, for example, by allowing zombie firms [non-viable firms that are still operating] to keep going.” The plan for debt-for-equity swaps could end up offering a temporary lifeline to unviable state-owned companies, they warned. It could also leave them managed by state-owned banks or other officials with little experience in doing so. Pooling non-performing loans and selling them as securities also presented other potential problems. While it could help clear up debt problems quickly it could also end up helping to prop up struggling state-owned enterprises. Some 60% of non-performing loans in China are owed by SOEs “and are concentrated in a few distressed industries”, they wrote.

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This is why China is stockpiling like nuts.

China Struggles As Oil Losses Climb (EM)

China’s biggest oilfield is suffering huge losses as the government seeks to avoid layoffs despite prices that have dropped below production costs. On April 8, the official Xinhua news agency reported that the Daqing oilfield in northern Heilongjiang province lost over 5 billion yuan (U.S. $769 million) in the first two months of the year. In spite of the costs, production in the first quarter held steady at year-earlier levels of 9.28 million tons (755,800 barrels per day), according to PetroChina, the listed subsidiary of state-owned China National Petroleum Corp. (CNPC). Output has been declining for years at Daqing, China’s mainstay oil resource, which has fueled the economy for over six decades. Annual production of 50 million metric tons (1 million barrels per day) lasted 27 years until 2003 before slipping to the 40-million-ton range, the official English-language China Daily and Global Times said.

In December 2014, PetroChina announced plans to cut output by 1.5 million tons and scale back production at the depleted field to 32 million tons by 2020. But even at lower levels, production at Daqing with enhanced recovery methods is proving uneconomic. Production costs stand at U.S. $45 (292 yuan) per barrel, said Jiang Wanchun, Communist Party secretary of the oilfield, according to The Wall Street Journal. China’s average production cost is $40 (260 yuan) per barrel, China Daily said. With benchmark oil prices falling below $45 since early December, Daqing has been losing money on every barrel it pumps. Prices dipped below U.S. $28 (182 yuan) per barrel in February before staging a partial recovery. Even after international prices approached the $45 range last week, the prospects for profits at Daqing appeared marginal at best.

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As a bubble pops.

US Oil Woes Start To Hit Workers Hard (WSJ)

The slump in crude prices is starting to show up as missed payments by consumers in the oil patch. In states from Oklahoma and Texas to North Dakota and Wyoming, rising unemployment in the energy sector is pushing up loan delinquencies and raising the risk of new losses for banks. Wells Fargo this month reported an increase in borrowers falling behind on payments in areas including Houston and parts of Alaska. J.P. Morgan said auto-loan delinquency rates picked up in some energy-related markets. Overall, energy-dependent states are posting delinquency rates that in many cases exceed the national average, according to data prepared for The Wall Street Journal by credit bureau TransUnion. “In these energy states, we are clearly seeing the impact of the loss of oil jobs,” said Ezra Becker, senior vice president and head of research at TransUnion.

“We don’t expect to see any kind of material improvement in the short term.” Some 119,600 oil and gas jobs nationwide have been eliminated—22% of the total—since September 2014, according to the Federal Reserve Bank of Dallas. The price of U.S.-traded oil, while on the rise this year, has dropped 28% since June. Some analysts have warned that persistent crude oversupply could prevent further price gains. Car loans and credit cards have been affected the most, and there are some early signs of delinquency-rate increases in borrowers who can’t make mortgage payments. Moody’s Investors Service said the share of borrowers in oil-focused areas falling 30 days behind on a pool of Freddie Mac mortgages, while low at 0.38% in December, began to exceed the average elsewhere in the country last summer. The average for other areas was 0.29% in December.

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And now hit hard by Apple too.

Dan Loeb: We’re In The ‘First Inning’ Of A ‘Washout’ In Hedge Funds (CNBC)

Hedge funds are getting killed, says hedge fund manager Dan Loeb. Loeb’s Third Point Capital put out its quarterly letter to investors on Tuesday, calling the first three months of 2016 “one of the most catastrophic periods of hedge fund performance that we can remember since the inception of this fund.” Third Point was down 2.3% during the first quarter, which compares with a 1.3% gain for the S&P 500 over the same period. (As bad as that may be, though, it could have been worse — Bill Ackman’s Pershing Square was down more than 25% in the quarter.) Despite the weak performance, Third Point believes it is positioned to do well the rest of the year.

“There is no doubt that we are in the first innings of a washout in hedge funds and certain strategies,” Third Point said. “We believe we are well-positioned to seize the opportunities borne out of this chaos and are pleased to have preserved capital through a period of vicious swings in treacherous markets.” What caused the catastrophe? “Volatility across asset classes and a reversal of certain trends that started last summer caught many investors flat-footed in Q1 2016,” the firm added.

More specifically, Loeb said:
• China is all over the map.
• Hedge funds were long the “FANG” stocks — Facebook, Amazon, Netflix and Google — and those stocks are not doing well.
• “The Valeant debacle in mid-March decimated some hedge fund portfolios.” (The stock lost almost three-quarters of its value during the quarter).
• The collapsed Pfizer-Allergan deal hurt investors.
• A “huge asset rotation” into a “market neutral” strategy.
• He thinks the dollar has peaked, and oil has hit a bottom.

“We believe that the past few months of increasing complexity are here to stay and now is a more important time than ever to employ active portfolio management to take advantage of this volatility,” Loeb concluded. As an industry, hedge funds bounced back in March after a miserable start to 2016. The HFRI Fund Weighted Composite Index gained 1.8% in March, its strongest performance since February 2015. However, hedge funds saw investor redemptions in the first quarter. Investors withdrew $14.3 billion, leaving total assets under management at $3.1 trillion, according to industry tracker Preqin.

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What happens when central banks lose the illusion of control, and stocks start falling for real?!

The Bad Smell Hovering Over The Global Economy (G.)

All is calm. All is still. Share prices are going up. Oil prices are rising. China has stabilised. The eurozone is over the worst. After a panicky start to 2016, investors have decided that things aren’t so bad after all. Put your ear to the ground though, and it is possible to hear the blades whirring. Far away, preparations are being made for helicopter drops of money onto the global economy. With due honour to one of Humphrey Bogart’s many great lines from Casablanca: “Maybe not today, maybe not tomorrow but soon.” But isn’t it true that action by Beijing has boosted activity in China, helping to push oil prices back above $40 a barrel? Has Mario Draghi not announced a fresh stimulus package from the ECB designed to remove the threat of deflation?

Are hundreds of thousands of jobs not being created in the US each month? In each case, the answer is yes. China’s economy appears to have bottomed out. Fears of a $20 oil price have receded. Prices have stopped falling in the eurozone. Employment growth has continued in the US. The International Monetary Fund is forecasting growth in the global economy of just over 3% this year – nothing spectacular, but not a disaster either. Don’t be fooled. China’s growth is the result of a surge in investment and the strongest credit growth in almost two years. There has been a return to a model that burdened the country with excess manufacturing capacity, a property bubble and a rising number of non-performing loans. The economy has been stabilised, but at a cost.

The upward trend in oil prices also looks brittle. The fundamentals of the market – supply continues to exceed demand – have not changed. Then there’s the US. Here there are two problems – one glaringly apparent, the other lurking in the shadows. The overt weakness is that real incomes continue to be squeezed, despite the fall in unemployment. Americans are finding that wages are barely keeping pace with prices, and that the amount left over for discretionary spending is being eaten into by higher rents and medical bills. For a while, consumer spending was kept going because rock-bottom interest rates allowed auto dealers to offer tempting terms to those of limited means wanting to buy a new car or truck.

In an echo of the subprime real estate crisis, vehicle sales are now falling. The hidden problem has been highlighted by Andrew Lapthorne of the French bank Société Générale. Companies have exploited the Federal Reserve’s low interest-rate regime to load up on debt they don’t actually need. “The proceeds of this debt raising are then largely reinvested back into the equity market via M&A or share buybacks in an attempt to boost share prices in the absence of actual demand,” Lapthorne says. “The effect on US non-financial balance sheets is now starting to look devastating.” He adds that the trigger for a US corporate debt crisis would be falling share prices, something that might easily be caused by the Fed increasing interest rates.

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And this is while the ECB has been buying ABS since 2014. Where would the ‘industry’ be without the ECB? It’s the ‘little things’ that tell the story of where we are, best.

Europe’s Securitisation Industry’s Sales At Lowest For 5 Years (FT)

Europe’s securitisation market has experienced its worst quarter for new sales in nearly five years, underscoring the industry’s ongoing decline in spite of efforts from policymakers to revive the sector. During the first three months of the year, €14.3bn of securitisations were sold, marking the lowest quarterly level since mid-2011. Public issuance fell from €19.7bn over the same period a year earlier, according to data from the Association for Financial Markets in Europe. Securitisation — which takes mortgages and other loans, and packages them into bond-like instruments of varying risks — was once a booming industry in Europe but has struggled since the financial crisis. The slide in activity comes in spite of efforts from Brussels to revive the asset class, which it sees as a key source of funding across Europe’s economies.

The ECB has been buying asset-backed securities since late 2014 as part of its asset purchase programmes designed to stimulate the region’s economy. “The market is languishing,” said Richard Hopkin, head of fixed income at the Association for Financial Markets in Europe. “Firms are restructuring and scaling back their securitisation businesses.” Earlier in April, Nomura became the latest investment bank to pare back its securitisation team, amid broader cuts to its European investment banking business. Last summer, Barclays announced job cuts in its team. Market participants have pointed to stringent regulation on the asset class, in particular the capital charges against the products for banks and insurance companies, as a central factor in its decline.

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There’s a High Noon fight brewing between Draghi and all of Germany.

Merkel Attacks Draghi Over Interest Rates Policy, Cites Risks To Banks (R.)

The ECB’s ultra-low interest rates could worsen problems for already weak banks in Europe, German Chancellor Angela Merkel said on Wednesday, calling for a tightening of monetary policy. The ECB unveiled a large stimulus package in March that included cutting its deposit rate deeper into negative territory and increasing asset buys, despite the objections of Germany, the largest economy in the euro zone. The ECB stimulus prompted a fresh wave of criticism from German politicians who fear the ultra-easy monetary policy is eroding both the savings of thrifty citizens and also bank margins, putting the banking system at risk. “The risks remain high. There are still too many weak banks in Europe and the low interest rates … will tend to make this problem worse over the coming years,” Merkel said at an event in Duesseldorf for German savings banks.

ECB head Mario Draghi says the policy of printing money and keeping borrowing costs at rock bottom is working and that interest rates will stay at current record lows for a long time. The ECB targets inflation of close to 2% over the medium-term but it is running at just below zero. Merkel said politicians need to press for more structural reforms to help generate stronger growth and private investment, thereby freeing up central banks to pursue a tighter monetary policy. “Central banks, including the ECB, are independent so I think politicians must focus on stimulating growth,” she said.

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The likes of Tusk and Dijsselbloem simple enjoy holding a gun to Greece’s head so much they can’t help themselves. It’s what sociopaths derive their pleasures from. So no emergency meeting because of a non-reason: ““There are practical issues that many countries have, with national holidays next week.”

That’s like the old joke of a country being invaded and telling the attackers to come back next week.

Tusk Rejects Tsipras Request For EU Summit On Greece Bailout (G.)

Mounting urgency has returned to Greece with the country’s financial predicament igniting fears of a re-run of last summer’s nail-biting drama. Rejecting a Greek request for an extraordinary EU summit to discuss its troubled bailout programme, European council president Donald Tusk instead urged eurozone finance ministers to resume talks that would avert further turmoil. The nation faces default if it fails to receive the necessary loans to cover €3.5 bn in maturing debt in July. “We have to avoid a situation of renewed uncertainty for Greece,” he told reporters after speaking with prime minister Alexis Tsipras on Wednesday. “We need a specific date for a new Eurogroup meeting in the not-so-distant future and I am talking not about weeks but about days.”

In a repeat of last year’s heady days, Athens’ leftist-led government is scrambling to raise funds to ensure payment of salaries and pensions in May. The reserves of state entities and pension funds have effectively been sequestered with officials demanding deposits be placed in the central bank on short-term loan to cover looming shortfalls. “The government is behaving as if it has already run out of money,” said prominent political commentator Pantelis Kapsis. “That in itself signifies there will be no agreement soon. There is great uncertainty. All scenarios are on the table including early elections.” Greece’s embattled prime minister appealed for the emergency EU summit after Athens and its creditors failed late Tuesday to resolve differences over the extent of budget cuts and reforms the debt-stricken state must make in return for rescue loans.

The lack of headway prompted Dutch finance minister and Eurogroup chairman, Jeroen Dijsselbloem, who oversees negotiations, to cancel a scheduled meeting at which it was hoped the talks would finally be concluded on Thursday. Speaking in Paris after talks with his French counterpart Michel Sapin on Wednesday, Dijsselbloem said a new meeting would be lined up in the weeks ahead. “I don’t have a deadline, although there is a sense of urgency that we all share, so we’ll have to see whether it can be next week or ultimately the week after,” he told reporters. “There are practical issues that many countries have, with national holidays next week.”

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A bad tourist season could be the last straw for Greece, and another reason for Europe to add more demands.

Athens Under Pressure To Clear Piraeus Refugee Camp Before Tourists Arrive (G.)

[..] At its peak last month, close to 14,000 refugees had amassed in Piraeus, posing serious challenges for public order and health. By mid-April, however, attention had turned increasingly to the capital’s erstwhile international airport in Elliniko. Once poised to become Europe’s biggest metropolitan park, the disused airport was transformed into an “official” shelter in March, when it became clear that countries further north had cut off access to Europe for good. If there was a semblance of order to the chaos of Piraeus, there is none here: outside derelict buildings, children play barefoot around overflowing rubbish bins; officialdom comes in the form of a single police car, parked alongside a fence clad with clothes, while up a flight of stairs inside the departure terminal, roughly 2,000 men, women and children – almost double the centre’s capacity – sleep side by side.

Lack of heat or air-conditioning means it is cold at night and stifling during the day; sanitation amounts to five toilets for men and five for women, with showers installed earlier this month. A further 3,000 refugees are crammed into two former Olympic venues – the old hockey and baseball stadiums – at Elliniko, where conditions are said to be so poor that access for NGOs or the media is rare. With hunger reputed to be on the rise, volunteers have openly voiced fears of offering services to people who are increasingly desperate. Last week, following the death of a 17-year-old Afghan girl in the camp, irate local mayors felt compelled to write a letter to prime minister Alexis Tsipras deploring the conditions as unacceptable and inhumane. Calling for immediate measures, the Athens Medical Association warned of a public health emergency.

“So far, Greece has been very lucky,” Papayiannakis noted before news of the Afhgan girl’s death broke. “There have been no serious incidents – but luck, you know, can run out.” Despite record unemployment and poverty levels, Greeks have responded to the influx with compassion and solidarity. Many have brought food and clothes to public squares, harking back to their families’ own experience as refugees when thousands were forcibly expelled from the Anatolian heartland after Greece’s ill-fated attempt to invade Turkey in 1922. For immigrants like Arif Rahman, a businessman who heads the Bangladeshi Chamber of Commerce, that reaction has been heartening – even if the government’s own response has been bungled and chaotic.

A slender man who first came to Greece in the late 1980s, Rahman has all too often witnessed his adopted country’s tough immigration policies – not least its steadfast refusal to offer citizenship to the children of emigres. “Now is the time for Greeks to show what civilisation and democracy means,” he says. “These people don’t want to stay here. We keep telling the government, as foreign community leaders, ‘Ask us for help, we know our people, we know what they need. Don’t let it get uglier than it already has.’”

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What a crazy country it is turning into. All in an eery silence. Where are the protests?

More Than A Million People In UK Living In Destitution (G.)

More than a million people in the UK are so poor they cannot afford to eat properly, keep clean or stay warm and dry, according to a groundbreaking attempt to measure the scale of destitution in Britain. A study by the Joseph Rowntree Foundation (JRF) found that 184,500 households experienced a level of poverty in a typical week last year that left them reliant on charities for essentials such as food, clothes, shelter and toiletries. More than three-quarters of destitute people reported going without meals, while more than half were unable to heat their home. Destitution affected their mental health, left them socially isolated and prone to acute feelings of shame and humiliation.

Although the study could not demonstrate that destitution had increased in recent years, it said this would be a plausible conclusion because of related evidence showing austerity-era rises in severe poverty, food bank use, homelessness and benefit sanction rates. In 2015, there were 668,000 destitute households containing 1,252,000 people, including 312,000 children. The study said this was an underestimate because the data did not capture poor households who eschewed charity handouts or used only state-funded welfare services Julia Unwin, chief executive of JRF, said: “It is simply unacceptable to see such levels of severe poverty in our country in the 21st century. Governments of all stripes have failed to protect people at the bottom of the income scale from the effects of severe poverty, leaving many unable to feed, clothe or house themselves and their families.”

Researchers called on the government to monitor destitution levels annually to better understand how people in poverty slipped into extreme hardship and to examine what could be done to close the holes in the welfare safety net. Destitution was defined by researchers as reliance on a weekly income so low (£70 for a single adult, £140 for a couple with children after housing costs) that basic essentials were unaffordable. People who met at least two of six measures over the course of a month, including eating fewer than two meals a day for two or more days, inability to heat or light their home for five days or sleeping rough for one or more nights, were also deemed to be destitute.

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Australia is trying to outdo the EU in becoming the wasteland of of international law, morals, decency and human values.

Papua New Guinea To Close Aussie Refugee Detention Camp (AFP)

Australia’s hardline immigration policy was thrown into turmoil yesterday after Papua New Guinea (PNG) ordered a processing camp to close, leaving the fate of hundreds of asylum-seekers hanging in the balance. The move to shutter the Australian-funded Manus island facility follows a Supreme Court ruling on Tuesday that holding people there was unconstitutional and illegal. Piling further pressure on Canberra, just weeks away from an expected election campaign, an Iranian refugee set himself on fire during a visit by UN officials to Nauru, the other Pacific nation where Australia sends boat people. And four others on the tiny outpost reportedly attempted suicide by drinking washing powder on Tuesday.

“Respecting this (court) ruling, Papua New Guinea will immediately ask the Australian government to make alternative arrangements for the asylum seekers at the regional processing centre,” Prime Minister Peter O’Neill said. Papua New Guinea’s former opposition leader Belden Namah had challenged the Manus arrangement in court, claiming it violated the rights of asylum seekers. The Supreme Court found that detaining them on the island was “contrary to their constitutional right of personal liberty”.

Despite this, Australian Immigration Minister Peter Dutton was adamant that none of the 850 or so men held there would enter his country and that Canberra’s policy – designed to deter others wanting to make the risky journey by boat – would not change. “As I have said, and as the Australian government has consistently acted, we will work with our PNG partners to address the issues raised by the Supreme Court of PNG,” he said in a statement after Mr O’Neill’s decision. Mr O’Neill did not set a timeframe for the closure. He said he did not anticipate asylum seekers being kept for so long at the Manus camp, which was reopened in 2012 by Australia after being closed five years earlier when the then Labor government abandoned offshore processing.

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Apr 252016
 
 April 25, 2016  Posted by at 9:50 am Finance Tagged with: , , , , , , , , , ,  


Mathew Brady Three captured Confederate soldiers, Gettysburg, PA 1863

The Revenge Of Globalisation’s Losers (Münchau)
Obama and Merkel Unite Over TTiP (FT)
China Debt Load Reaches Record High As Risk To Economy Mounts (FT)
China’s Fresh Boom Nears Peak Just As Amateurs Pile In (AEP)
Warnings Flash for China’s Red-Hot Steel Market on 47% Surge (BBG)
China’s Steel Mill Margins Surge to 7-Year High on Boom (BBG)
Draghi’s Growth and Inflation Conundrum Will Be Displayed Friday (BBG)
Stunted Growth: The Mystery Of The UK’s Productivity Crisis (G.)
The Tokyo Whale Is Quietly Buying Up Huge Stakes in Japan Inc. (BBG)
Goldman Expects The Japanese Yen To Collapse Within 12 Months (ZH)
How Argentina Settled a Billion-Dollar Debt & Paul Singer Made 392% (NY Times)
You Don’t Own That! The Evolution of Property (Roth)
UN To Urge Media To Take More ‘Constructive’ Approach To News (G.)
World Heads For Catastrophe In Failure to Prepare For Natural Disasters (G.)

Globalization has already died, it perished with the economic system. But it may take a long time until this is recognized, since that recognition would threaten vested interests.

The Revenge Of Globalisation’s Losers (Münchau)

Globalisation is failing in advanced western countries, where a process once hailed for delivering universal benefit now faces a political backlash. Why? The establishment view, in Europe at least, is that states have neglected to forge the economic reforms necessary to make us more competitive globally. I would like to offer an alternative view. The failure of globalisation in the west is in fact down to democracies failure to cope with the economic shocks that inevitably result from globalisation — such as the stagnation of real average incomes for two decades. Another shock has been the global financial crisis — a consequence of globalisation — and its permanent impact on long-term economic growth.

In large parts of Europe, the combination of globalisation and technical advance destroyed the old working class and is now challenging the skilled jobs of the lower middle class. So voters’ insurrection is neither shocking nor irrational. Why should French voters cheer labour market reforms if it could result in the loss of their jobs, with no hope of a new one? Some reforms have worked, but ask yourself why. Germany’s acclaimed labour market reforms in 2003 succeeded in the short term because they raised the country’s cost competitiveness through lower wages relative to other advanced countries. The reforms produced a state of near full employment only because no other country did the same. If others had followed, there would have been no net gain. The reforms had a big downside.

They reduced relative prices in Germany and pushed up net exports in turn generating massive savings outflows, the deep cause of the imbalances that led to the eurozone crisis. Reforms such as these can hardly be the recipe for how advanced nations should address the problem of globalisation. Nor is there any factual evidence that countries that have reformed are performing better or are more able to cope with a populist insurrection. The US and the UK have more liberal market structures than most of continental Europe. Yet the UK may be about to exit the EU; in the US the Republicans may be about to nominate an extreme populist as their presidential candidate. Finland leads all the competitiveness rankings but the economy is a non-recovering basket case — and it has a strong populist party.

The economic impact of reforms is usually subtler than its advocates admit. And there is no straight connection between reforms and support for established political parties. My diagnosis is that globalisation has overwhelmed western societies politically and technically. There is no way we can, or should, hide from it. But we have to manage the change. This means accepting that the optimal moment for the next trade agreement, or market liberalisation, may not be right now.

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TTiP is just a leftover chicken walking a few more steps after its head is chopped off.

Obama and Merkel Unite Over TTiP (FT)

Barack Obama and Angela Merkel have called for talks over a transatlantic trade deal to be completed this year as fears mount that the opportunity to reach an agreement is slipping away. The US president used a visit to Hanover in Germany on Sunday to try to breathe new life into the Transatlantic Trade and Investment Partnership, which has been beset by political opposition in the US and Europe. “I am confident we will get this done,” Mr Obama said, talking about completing the negotiations this year. But he said time was “not on our side”, calling on all European leaders to support the deal and not “let this opportunity close”. President Obama was in Germany after a visit to Saudi Arabia and the UK where he waded into the Brexit debate, urging Britain to remain in the EU.

Speaking at a joint press conference, Mr Obama went out of his way to praise the German chancellor, who has been one of his closest confidants among international leaders but whose domestic political standing has been undermined by the migrant crisis. The German decision to allow more than 1m people to enter the country last year had put Ms Merkel “on the right side of history” despite the political backlash, he said. “She is giving voice to principles that bring people together rather than divide them. I’m very proud of her for that and I’m proud of the German people for that,” he added. In return, Ms Merkel showered her American counterpart with praise for his leadership on the Paris climate accords. “Barack, a personal thanks to you,” she said. “Without the United States of America, this would not have come to pass.”

The TTIP negotiations, which were launched in July 2013, have progressed slowly as opposition in Europe has grown and some member states have begun expressing scepticism. Ms Merkel said she wanted to speed up the negotiations, as a deal would be helpful in allowing the German and eurozone economies to grow. “We should do our bit,” she said. The chancellor added that she would canvas widely to get the deal back on track and pledged to “inject this with a new dynamism from the European side”. Mr Obama said that although he hoped the negotiations would be concluded this year, it would take longer for countries to ratify a deal.

[..] The closer the talks get to 2017, the more difficult life will become for EU trade negotiators. Chancellor Merkel faces re-election in parliamentary polls and French president François Hollande is at risk of losing in presidential elections, with National Front leader Marine Le Pen comfortably ahead in opinion polls. With TTIP divisive in both countries, officials, especially France, are unlikely to want to press ahead with the talks. Matthias Fekl, France’s trade minister, on Sunday reiterated previous threats to withdraw from the talks if there was not sufficient progress on a number of issues in the months to come. France has constantly put forward criteria, conditions, demands, Mr Fekl told the country’s i-Tele news channel. If these conditions are not fulfilled…France will withdraw.

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Tyler Durden’s comment: the real debt is not 237% of GDP, but 350%.

China Debt Load Reaches Record High As Risk To Economy Mounts (FT)

China’s total debt rose to a record 237% of GDP in the first quarter, far above emerging-market counterparts, raising the risk of a financial crisis or a prolonged slowdown in growth, economists warn. Beijing has turned to massive lending to boost economic growth, bringing total net debt to Rmb163 trillion ($25 trillion) at the end of March, including both domestic and foreign borrowing, according to Financial Times calculations. Such levels of debt are much higher as a proportion of national income than in other developing economies, although they are comparable to levels in the U.S. and the eurozone. While the absolute size of China’s debt load is a concern, more worrying is the speed at which it has accumulated — Chinese debt was only 148% of GDP at the end of 2007.

“Every major country with a rapid increase in debt has experienced either a financial crisis or a prolonged slowdown in GDP growth,” Ha Jiming, Goldman Sachs chief investment strategist, wrote in a report this year. The country’s present level of debt, and its increasing links to global financial markets, partly informed the International Monetary Fund’s recent warning that China poses a growing risk to advanced economies. Economists say it is difficult for any economy to deploy productively such a large amount of capital within a short period, given the limited number of profitable projects available at any given time. With returns spiralling downwards, more loans are at risk of turning sour. According to data from the Bank for International Settlements for the third quarter last year, emerging markets as a group have much lower levels of debt, at 175% of GDP.

The BIS data, which is based on similar methodology to the FT, put Chinese debt at 249% of GDP, which was broadly comparable with the euro zone’s figure of 270% and the US level of 248%. Beijing is juggling spending to support short-term growth and deleveraging to ward off long-term financial risk. Recently, however, as fears of a hard landing have intensified, it has shifted decisively towards stimulus. New borrowing increased by Rmb6.2tn in the first three months of 2016, the biggest three-month surge on record and more than 50% ahead of last year’s pace. Economists widely agree that the health of the country’s economy is at risk. Where opinion is divided is on how this will play out. At one end of the spectrum is acute financial crisis — a “Lehman moment” reminiscent of the U.S. in 2008, when banks failed and paralyzed credit markets.

Other economists predict a chronic, Japan-style malaise in which growth slows for years or even decades. Jonathan Anderson, principal at Emerging Advisors Group, belongs to the first camp. He warns that banks driving the huge credit expansion since 2008 rely increasingly on volatile short-term funding through sales of high-yielding wealth management products, rather than stable deposits. As Lehman and Bear Stearns proved in 2008, this kind of funding can quickly evaporate when defaults rise and nerves fray. “At the current rate of expansion, it is only a matter of time before some banks find themselves unable to fund all their assets safely,” Mr Anderson wrote last month. “And at that point, a financial crisis is likely.”

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The greater fools are getting fleeced. “..But how much longer can Beijing go on creating debt at a breakneck pace?”

China’s Fresh Boom Nears Peak Just As Amateurs Pile In (AEP)

Elite global banks have begun to warn clients that China’s latest credit-driven boom is nearing its peak and will lose momentum by late summer, dashing hopes for a genuine cycle of fresh economic growth and commodity demand. Morgan Stanley, Nomura, and Societe Generale have all issued cautionary notes just as amateur investors belatedly turn bullish again on China and start to pile into both commodities and emerging market equities. “While the mini-recovery is likely to last another 3-4 months, our economists expect a renewed slowdown in the second half of the year, as stimulus efforts fade,” said Morgan Stanley. The US bank said record credit growth over the last quarter will keep growth humming for a little longer but the fiscal blitz is already ebbing and the government is imposing property curbs in the Eastern cities to prevent a speculative bubble.

China’s reflation drive has been explosive. New home sales jumped 64pc in March from a year earlier. House prices have risen 28pc in Beijing, 30pc in Shanghai, and 63pc in the commercial hub of Shenzhen. The rush to buy has spread to the Tier 2 cities such as Hefei – up 9pc in a single month. “The housing market is on fire,” said Wei Yao, from Societe Generale. “In the first quarter, increases in total credit exploded to 7.5 trilion yuan, up 58pc year-on-year. There is no bigger policy lever than this kind of credit injection.” “This looks like an old-styled credit-backed investment-driven recovery, which bears an uncanny resemblance to the beginning of the“four trillion stimulus” package in 2009. The consequence of that stimulus was inflation, asset bubbles and excess capacity. We still think that this recovery will not last very long,” she said.


China’s housing market is on fire

The signs of excess are visible everywhere as the Communist Party once again throws caution to the wind . Cement production jumped 24pc in March and infrastructure investment rose 19pc. Yang Zhao from Nomura said the edifice is becoming more dangerously unstable with each of these stop-go mini-booms. “Structural problems and financial imbalances are worsening. We believe this debt-fueled growth is not sustainable,” he said. Nomura said the law of diminishing returns is setting in as the economy nears credit exhaustion. The ‘incremental credit-output ratio” has deteriorated to 5.0 from 2.3 in 2008. Loans are losing traction and the quality of investment is falling. “Be careful. We are nearing the point where things are as good as they get for the first half of 2016. We recommend taking some money off the table,” said Wendy Liu and Vicky Fung, the bank’s equity strategists.

Despite the stimulus, defaults among private companies and state entities (SOEs) have jumped to 11 so far this year from 17 last year, and the defaults are getting bigger. China Railway Materials has just suspended trading on $2.6bn of debt. Michelle Lam from Lombard Street Research said Beijing has retreated from reform and resorted to pump-priming again. “This may last for one or two quarters. But how much longer can Beijing go on creating debt at a breakneck pace?” she said. Capital Economics says there has typically been a lag of six to nine months after each burst of credit, suggesting that economic growth will roll over in the late Autumn. Markets do not move in lockstep, and may anticipate this.


China’s M1 money supply is growing at the fastest pace since the post-Lehman stimulus

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Must we wait till they run out of storage space for this too?

Warnings Flash for China’s Red-Hot Steel Market on 47% Surge (BBG)

Warnings are stacking up fast after China’s eye-popping steel rally. Fitch Ratings said prices lifted in part by heightened speculation are destined to slump, while a bank in Singapore flagged the risk of a boom-bust cycle reminiscent of China’s equity market. The rapid advance isn’t sustainable as mills are expected to bring back idled capacity, raising supply, Fitch said in a report on Monday. Price gains have been driven by a seasonal recovery in activity that’s been exacerbated by increased speculation in the futures market, according to analyst Laura Zhai. Steel prices have surged in 2016, with reinforcement-bar up 47%, after policy makers in China talked up growth and added stimulus, helping to lift property prices and ignite a speculative frenzy. The gains have helped to restore mills’ profitability, boosting their incentive to increase output.

Singapore-based Oversea-Chinese Banking warned on Monday that there may be parallels between the sudden jump in steel trading and last year’s performance in equities, citing the potential for a boom-bust scenario. “The rapid increase in Chinese steel prices so far this year is not sustainable, as it is largely due to a seasonal pick-up in construction and elevated speculation in the steel futures market,” Fitch said. “With prices now surging, many of the suspended plants have resumed production.” Futures for rebar extended gains, rallying as much as 6.2% to 2,781 yuan ($427) a metric ton on the Shanghai Futures Exchange, before trading 0.2% higher on Monday. The price of the product used to strengthen concrete advanced for the 11th straight week through Friday, adding 14%. Steel output in the world’s largest supplier may see a further increase this month as more furnaces are fired up, according to Fitch.

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Pon. Zi.

China’s Steel Mill Margins Surge to 7-Year High on Boom (BBG)

China’s steel mills are making more money on each ton produced than at any time since 2009 after the government embarked on 4 trillion yuan ($615 billion) in infrastructure spending. A surprise rebound in China’s property and construction sectors has left steel buyers facing a shortage, and handed embattled mills a sudden boost to margins, according to data from Bloomberg Intelligence. The rally in steel prices is unsustainable as higher profits draw idled plants back into operation, says Fitch Ratings.

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The lack of understanding of what inflation is, and what drives it, among both central bankers and media, is baffling.

Draghi’s Growth and Inflation Conundrum Will Be Displayed Friday (BBG)

A suite of euro-area data on Friday will provide Mario Draghi with his first simultaneous dispatches from both fronts in his struggle to boost inflation – showing how he still has a fight on his hands. GDP numbers, in a newly accelerated publication just one month after the first quarter ended, will coincide with the usual end-of-the-month inflation statistics to present a snapshot of what the ECB president still has to achieve. It’s likely to show the euro area has now completed a dozen quarters of consecutive growth – though that momentum isn’t strong enough to produce faster price gains. Euro-area inflation hasn’t hit its target since 2013, when the economy was contracting. But now that it’s expanding, weak global demand, cheap commodity costs and a lack of investment are weighing down prices.

It’s a conundrum that Draghi hasn’t been able to solve, even after he’s cut interest rates to record lows, expanded bond purchases and started an additional loan program for banks. “The big story on inflation is that it’s flat, and going nowhere in the short term,” said Anatoli Annenkov, senior economist at Societe Generale in London, adding that cheap oil is behind the restraint and prices should move up later in the year. “We don’t doubt that the ECB’s measures are helping – they should have an impact on inflation and growth. The question is how big.” The region’s inflation rate probably stayed at zero in April, based on a Bloomberg survey of economists. That’s far below policy maker’s near-2% goal. By contrast, first-quarter growth probably picked up to 0.4% from 0.3% in the previous quarter.

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Mystery? Not here.

Stunted Growth: The Mystery Of The UK’s Productivity Crisis (G.)

Our economic future isn’t what it used to be. In March the Office for Budget Responsibility (OBR) revised down its growth estimates for each of the next five years. The chancellor was quick to blame a weakening world economy but the true driver lies closer to home. The problem isn’t a loud global economic crash but something much quieter: engine trouble. Productivity growth, the long-term motor of rising living standards, is slowing. The fact that this appears to be happening across the globe offers scant consolation. What’s worse is that no one is entirely sure what is causing the problem or how to fix it. And it is coming at about the worst time imaginable: global demographics are changing, with the supply of new workers set to slow and the older share of the population rising.

The future is of course inherently unknowable, but the reasons for longer-term pessimism on economic growth are starting to stack up. Productivity – the amount of output produced for each hour worked – rose at a fairly steady annual rate of about 2.2% in the UK for decades before the recession. Since the crisis though, that annual growth rate has collapsed to under 0.5%. The OBR has decided to revise down its future assumption on productivity from that pre-crisis 2.2% to a lower 2%. That small revision was enough to give the chancellor a large fiscal headache in his latest budget, but it still assumes a big rebound in productivity growth from its current level. What if that rebound doesn’t come? The near death of the British steel industry is a tragedy. But for all the political heat it has generated, its long-term consequences wouldn’t be as serious as the wider crisis. For while closing mills are highly visible, slipping productivity is not.

Looking at the global picture shows that while there are of course national nuances, the overall impression is grim and dates back to before the 2008 crash. Everywhere from the “dynamic” United States to “sclerotic” France, productivity growth has dropped considerably in recent years. The UK is an outlier with a bigger fall than many, but not by much. Some of this could be explained by measurement issues. To use every economist’s favourite example, it is straightforward to measure the inputs, the outputs – and hence the productivity – of a widget factory, even if no one is really sure what a widget is. It is harder to do the same with an online widget brand manager. But the mismeasurement would have to be on an unprecedented scale to explain away the problem.

What we are left with is a bewildering array of theories as to what has driven the fall but no clear answer. We know the productivity slowdown is broad based and happening across most sectors of the economy. Lower corporate and public investment than in the past almost certainly explains some of the shortfall. Weaker labour bargaining power than in previous decades might also be playing a role. Low wages are allowing low-skill, low-productivity business models to expand and deincentivising corporate spending on new kit. Why spend on expensive labour-saving technology when labour itself is cheap?

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How does this differ from China again?

The Tokyo Whale Is Quietly Buying Up Huge Stakes in Japan Inc. (BBG)

They may not realize it yet, but Japan Inc.’s executives are increasingly working for a shareholder unlike any other: the nation’s money-printing central bank. While the Bank of Japan’s name is nowhere to be found in regulatory filings on major stock investors, the monetary authority’s exchange-traded fund purchases have made it a top 10 shareholder in about 90% of the Nikkei 225 Stock Average, according to estimates compiled by Bloomberg from public data. It’s now a major owner of more Japanese blue-chips than both BlackRock, the world’s largest money manager, and Vanguard Group, which oversees more than $3 trillion. To critics already wary of the central bank’s outsized impact on the Japanese bond market, the BOJ’s growing influence in stocks risks distorting valuations and undermining efforts to improve corporate governance.

Proponents, meanwhile, say the purchases provide a much-needed boost to investor confidence. With the Nikkei 225 down 8.3% this year and inflation well below official targets, a majority of analysts surveyed by Bloomberg predict the BOJ will boost its ETF buying – a move that could come as soon as Thursday. “For those who want shares to go up at any cost, it’s absolutely fantastic that the BOJ is buying so much,” said Shingo Ide at NLI Research Institute in Tokyo. “But this is clearly distorting the sanity of the stock market.” Under the BOJ’s current stimulus plan, the central bank buys about 3 trillion yen ($27.2 billion) of ETFs every year.

While policy makers don’t disclose how those holdings translate into stakes of individual companies, estimates can be gleaned from publicly available central bank records, regulatory filings by companies and ETF managers, and statistics from the Investment Trusts Association of Japan. The estimates reveal a presence in Japan’s top firms that’s rivaled by few others, with the BOJ ranking as a top 10 holder in more than 200 of the Nikkei gauge’s 225 companies. The central bank effectively controls about 9% of Fast Retailing, the operator of Uniqlo stores, and nearly 5% of soy sauce maker Kikkoman. It has an estimated shareholder rank of No. 3 in both Yamaha, one of the world’s largest makers of musical instruments, and Daiwa House, Japan’s biggest homebuilder.

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A state run economy has a limited lifespan, but it can be stretched beyond expectations.

Goldman Expects The Japanese Yen To Collapse Within 12 Months (ZH)

Forget the G-20 agreement on no “competitive devaluations” – the full court press on the Bank of Japan to engage in the next round of aggressive currency devaluation is on, just three months after Kuroda unveiled Japan’s first negative interest rate. Recall that it was Goldman who not only brought forward its forecast for a first rate hike from July to April and first suggested earlier this week that it is time for the Bank of Japan to forget about caution and to more than double its purchases of equities in the form of ETFs (and which the BOJ already owns a majority of all available securities) as doing either more NIRP and more QE may no longer have a favorable outcome:

… we think the BOJ is most likely to ease mainly via the qualitative measure, with increasing ETF purchasing the central pillar, with a view to improving business confidence. We think the market is already factoring in an increase in annual purchasing from ¥3.3 tn to ¥5-6 tn, and we thus think the BOJ may look to slightly more than double its current figure to around ¥7 tn.

This pushed both the USDJPY and the S&P off their overnight lows when it was first floated in the early morning of April 20. Then, on Friday, the Yen had its biggest one day surge since the announcement of the expanded QQE in October 2014 when Bloomberg reported of the latest BOJ trial balloon whereby “the Bank of Japan may consider helping banks lend by offering a negative rate on some loans, according to people familiar with talks at the BOJ.” This happened just as the net spec short position in the USDJPY hit record short, forcing yet another massive squeeze in the currency which soared higher by nearly 300 pips in one day.

Which brings us to today, when in its latest attempt to throw everything at the wall and hope something sticks, Goldman Sachs’ FX team – whose trading recommendations in the past 6 months have been an unmitigated disaster – is predicting that the $/JPY will “move higher again in the near term and continue to forecast $/JPY at 130 a year from now.” Why does Goldman expect a collapse in the Yen by nearly 20 big figures? Because as analysts Sylvia Ardagna and Robin Brooks note, “the BoJ faces an important challenge: it needs to reaffirm that the monetary easing arrow of Abenomics is still on course, or the market will price that the central bank is backtracking from the 2% inflation goal. This could be extremely disruptive for the Japanese economy. Using markets jargon, the BoJ is already so long into ‘the reflationary trade’ that it has to continue to deliver further accommodation for the time being.”

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The vulture as the Apex predator.

How Argentina Settled a Billion-Dollar Debt & Paul Singer Made 392% (NY Times)

The Waldorf Astoria hotel in Manhattan has long been a location for secret diplomacy, but few meetings there would have seemed as unlikely as the one that took place one day in early December. In a hotel conference room, a top Argentine politician drank coffee with two hedge fund executives — a meeting that was nothing short of remarkable after more than a decade of bitter legal skirmishes between Argentina and a group of disgruntled debt holders who at one point seized an Argentine Navy ship. The previous Buenos Aires government reviled the hedge funds as “vultures.” That meeting on Dec. 7 between Luis Caputo, who days later would be sworn in as Argentina’s finance secretary, and Jonathan Pollock and Jay Newman from Elliott Management, the $27 billion hedge fund founded by Paul E. Singer, was the start of a rapprochement leading to a momentous debt deal that has now allowed Argentina to rejoin the global financial markets that it had been locked out of for 15 years.

Last week, Argentina successfully sold $16.5 billion in bonds to international investors, a record amount for any developing country. And on Friday, Elliott and the other bondholders finally received their reward in the form of billions of dollars in repayment, representing returns worth hundreds of times their original investments. “Today, we have put a definitive close to this chapter,” Alfonso Prat-Gay, Argentina’s economic minister, told an Argentine radio station on Friday. The negotiations that led to the deal were set in motion by the election in November of President Mauricio Macri, who ran on a promise to reignite Argentina’s flailing economy. Striking a deal with the country’s aggrieved bondholders was central to getting that done.

How Argentina and the hedge funds were able to break the long stalemate and reach a deal in a matter of weeks is a story of furious back-channeling and clashes that nearly derailed an agreement. Details of those negotiations have emerged from interviews with eight people who were involved in those meetings, as well as court filings and emails reviewed by The New York Times. Many of those people spoke on condition of anonymity because they were not authorized to speak publicly. There were moments when the talks nearly fell apart. Three days before a deal was signed with Elliott, Mr. Caputo, exasperated by a back-and-forth with bondholders over whether they would return government assets they had seized, emailed the court-appointed mediator: “THIS IS A JOKE; NO DEAL.”

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” The whole world’s financial machinery [..] all comes down to (the threat of) physical force.”

You Don’t Own That! The Evolution of Property (Roth)

There are a large handful of things that make humans uniquely different from animals. In many other areas — language, abstract reasoning, music-making, conceptions of self and fairness, large-scale cooperation, etc. — humans and animals vary (hugely) in degree and kind. But they still share those phenotypic behavioral traits. I’d like to explore one of those unique differences: ownership of property. Animals don’t own property. Ever. They can and do possess and control goods and territories (possession and control are importantly distinct), but they never “own” things. Ownership is a uniquely human construct. To understand this, imagine a group of tribes living around a common water source. A spring, say. There’s ample water for all the tribes, and all draw from it freely. Nobody “owns” it.

Then one day a tribe decides to take possession of the spring, take control of it. They set up camp surrounding it, and prevent other tribes from accessing it. They force the other tribes to give them goods, labor, or other concessions in return for access to water. The other tribes might object, but if the controlling tribe can enforce their claim, there’s not much the other tribes can do about it. And after some time, maybe some generations, the other tribes may come to accept that status quo as the natural order of things. By eventual consensus (however vexed), that one tribe “owns” the spring. Other tribes even come to honor and respect that ownership, and those who claim and enforce it. That consensus and agreement is what makes ownership ownership. Absent that, it’s just possession and control.

It’s not hard to see the crucial fact in this little fable: property rights are ultimately based, purely, on coercion and violence. If the controlling tribe can’t enforce its claim through violence, their “ownership” is meaningless. And those claimed rights are not just inclusionary (the one tribe can use the water). Property rights are primarily or even purely exclusionary. Owners can prevent others from doing anything with the owners’ property. Get off my lawn! When push comes to shove (literally), when brass tacks meet the rubber on the road (sorry, couldn’t resist), ownership and property rights are based purely on violence and the threat of violence. Full stop, drop the mic.

In the modern world we’ve largely outsourced the execution of that violence, the monopoly on violence, to government. If a family sets up a picnic on “your” lawn, you can call the police and they’ll remove that family — by force if necessary. And we’ve multiplied the institutional and legal mechanics and machinery of ownership a zillionfold. The whole world’s financial machinery — the immensely complex web of claims, claims on claims, and claims on claims on claims, endlessly and densely iterated and interwoven — all comes down to (the threat of) physical force.

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Newspeak goes global.

UN To Urge Media To Take More ‘Constructive’ Approach To News (G.)

The United Nations is to call for the world’s media to take a more “constructive” and “solutions-focused” approach to news to combat “apathy and indifference”. UN director general Michael Møller is to meet broadcast, print and online journalists in London on Wednesday to to discuss how new ways of covering the world with the help of the UN and the Constructive Voices programme run by the National Council for Voluntary Organisations. Constructive Voices incorporates an online resource designed to help journalists find case studies that provide practical solutions to problems. The UN has separately launched GAVDATA, an online portal providing access to a huge store of information from the the UN and other international organisations and NGOs. Speaking ahead of the event, director general Michael Møller said many people feel “disempowered” by the news and unable to influence decisions.

He said: “The choices we make are determined by the information we are given. These are fundamental to how we shape a better world together.” “In a world of 7 billion people, with a cacophony of voices that are often ill-informed and based on narrow agendas, we need responsible media that educate, engage and empower people and serve as a counterpoint to power. We need them to offer constructive alternatives in the current stream of news and we need to see solutions that inspire us to action. Constructive journalism offers a way to do that.” “It’s vital too that we have data and different points of view.” The UN and the NCVO also claims that the public are turned off by overwhelmingly negative news, and are more likely to share stories that offer solutions to problems, providing a commercial incentive for media organisations to include more positive stories.

NCVO chair Sir Martyn Lewis, a former BBC News presenter in the 80s and 90s who covered the death of Princess Diana, said the organisations were not asking the media to abandon its traditional approach, but to supplement it with journalism that helps solve problems. “It’s 23 years almost to the day that I first spoke out about the need for more balanced news agenda. I have been misunderstood in the past, with people believing I just wanted fluffy, feelgood news at the expense of covering real news,” said Lewis. “This is not the case at all. I’d like to see the media engage in solutions-driven journalism which not only reports problems but explores potential solutions to those problems as well.” “I would stress that this approach absolutely does not mean giving up the traditional approach to journalism, but is complementary to it and, interestingly, there is growing evidence that it makes a lot of commercial sense as well.”

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How the human brain is designed.

World Heads For Catastrophe In Failure to Prepare For Natural Disasters (G.)

The world’s failure to prepare for natural disasters will have “inconceivably bad” consequences as climate change fuels a huge increase in catastrophic droughts and floods and the humanitarian crises that follow, the UN’s head of disaster planning has warned. Last year, earthquakes, floods, heatwaves and landslides left 22,773 people dead, affected 98.6 million others and caused $66.5bn of economic damage. Yet the international community spends less than half of one per cent of the global aid budget on mitigating the risks posed by such hazards. Robert Glasser, the special representative of the secretary general for disaster risk reduction, said that with the world already “falling short” in its response to humanitarian emergencies, things would only get worse as climate change adds to the pressure.

He said: “If you see that we’re already spending huge amounts of money and are unable to meet the humanitarian need – and then you overlay that with not just population growth … [but] you put climate change on top of that, where we’re seeing an increase in the frequency and severity of natural disasters, and the knock-on effects with respect to food security and conflict and new viruses like the Zika virus or whatever – you realise that the only way we’re going to be able to deal with these trends is by getting out ahead of them and focusing on reducing disaster risk.” Failure to plan properly by factoring in the effects of climate change, he added, would result in a steep rise in the vulnerability of those people already most exposed to natural hazards. He also predicted a rise in the number of simultaneous disasters.

“As the odds of any one event go up, the odds of two happening at the same time are more likely. We’ll see many more examples of cascading crises, where one event triggers another event, which triggers another event.” Glasser pointed to Syria, where years of protracted drought led to a massive migration of people from rural areas to cities in the run-up to the country’s civil war. While he stressed that the drought was by no means the only driver of the conflict, he said droughts around the world could have similarly destabilising effects – especially when it came to conflicts in Africa. “It’s inconceivably bad, actually, if we don’t get a handle on it, and there’s a huge sense of urgency to get this right,” he said. “I think country leaders will become more receptive to this agenda simply because the disasters are going to make that obvious. The real question in my mind is: can we act before that’s obvious and before the costs have gone up so tremendously? And that’s the challenge.”

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Apr 222016
 
 April 22, 2016  Posted by at 9:31 am Finance Tagged with: , , , , , , , , , , ,  


Harris&Ewing Less taxes, more jobs, US Chamber of Commerce campaign 1939

US Middle Class Flees The Stock Market (ZH)
China Markets Send Ominous Signals as Global Stocks Rally (BBG)
China Seizes Biggest Share Of Global Exports In Almost 50 Years (R.)
China Risks Global ‘Steel War’ As Tempers Flare (AEP)
Yen Falls By Most In 7 Weeks As BOJ Considers Negative-Rate Loans (BBG)
Draghi Defies German Disfavor With Claim ECB Stimulus Works (BBG)
Pension Cuts Loom For Millions of Dutch As Big Funds Struggle (DN)
Eurozone Mess Can’t Be Fixed; It Can Only Be ‘Muddled Through’ (MW)
US Regulators Line Up to Consider New Executive Compensation Proposal (WSJ)
How Goldman Sachs’ Vampire Squid Became A Flattened Slug (Tett)
Greek Talks With Lenders Fraught As Fears Grow Of Default (G.)
The Real Reason Dilma Rousseff’s Enemies Want Her Impeached (Miranda)
All Diesel Cars’ Emissions Far Higher On Road Than In Lab (G.)
Mitsubishi Scandal Deepens After US Demands Test Data (G.)
Why UK Landed Gentry Are So Desperate To Stay In The EU (G.)
Angela Merkel Faces Balancing Act On Visit To Turkey (G.)

“..no matter how hard the Fed works to prop and boost the market, nearly half of Americans no longer have any faith left in what has become clear to most is just a tool to push some crooked, crony-capitalist policy, but mostly to make the richest even richer.”

US Middle Class Flees The Stock Market (ZH)

Three recurring laments heard in the corridors of the Marriner Eccles building are why, with stocks at record highs after levitating in more or less a straight line for the past 7 years, i) has the economic recovery not been stronger, ii) has inflation not been higher, and iii) have consumer spending and sentiment never really recovered. A just released Gallup survey may have the answer. According to a poll of over 1,000 American adults, even with the Dow Jones industrial average near its record high, only slightly more than half of Americans (52%) say they currently have money in the stock market, matching the lowest ownership rate in Gallup’s 19-year trend.

The current figure is down slightly from 2014 and 2015, and continues a secular decline that started in 2007. But most troubling is that the generation which is expected to take over the stock ownership reins when the Baby Boomers start selling their equity holders, middle-class adults, especially those younger than 35, are the least likely to invest. As Gallup notes, “although Americans in all income groups are less likely to have stock investments now than before the Great Recession, middle-class Americans have been the most likely to flee the market” Gallup’s conclusion: “Fewer Americans – particularly those in middle-income families – are benefiting from the recent gains in stock values than would have been the case a decade ago.”

Which is the worst possible news for Janet Yellen, because no matter how hard the Fed works to prop and boost the market, nearly half of Americans no longer have any faith left in what has become clear to most is just a tool to push some crooked, crony-capitalist policy, but mostly to make the richest even richer.

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Wobbly.

China Markets Send Ominous Signals as Global Stocks Rally (BBG)

As equities climb around the world, Chinese traders aren’t celebrating. The Shanghai Composite Index has fallen 4.6% this week, the worst performance among 93 global benchmark gauges tracked by Bloomberg and the steepest decline since January. It’s not just the stock market. The yuan is trading around its lowest level against a basket of currencies since November 2014, while yields on corporate debt have risen for 10 of the past 12 days. Concern is mounting over rising credit defaults, while traders are also paring bets for more stimulus amid signs of stabilizing growth, according to Dai Ming at Hengsheng in Shanghai. A sudden 4.5% plunge by the benchmark equity gauge on Wednesday revived memories of January’s stomach-churning turmoil, when shares sank 23% over the course of the month. “People are still very skeptical, and with good reason,” said Hao Hong at Bocom International in Hong Kong.

International concern about the health of China’s economy has been fading from view as data showed an improving picture and volatility in its stock and currency markets waned. Wednesday’s equity tumble in Shanghai caused barely a ripple among global shares as international traders focused on surging commodity prices – spurred partly by expectations of higher Chinese demand. Questions are being asked about how long the Communist Party can keep pumping money into the economy to prop up growth. New credit topped $1 trillion in the first quarter, helping GDP to expand 6.7% – still the slowest pace in seven years. Much of that money flowed into the property market, spurring concerns of a bubble. “There’s still a lot of doubt over the sustainability of the turnaround in the Chinese macro numbers,” said Adrian Zuercher UBS’s wealth management unit. “It’s a very stimulus-driven rebound that we now see.”

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“..the highest share any country has enjoyed since the United States in 1968.”

China Seizes Biggest Share Of Global Exports In Almost 50 Years (R.)

Chinese exporters have found a silver lining in weak global demand by seizing market share from their competitors – good news for China but an expansion that is aggravating trade tensions. China’s proportion of global exports rose to 13.8% last year from 12.3% in 2014, data from the United Nations Conference on Trade and Employment shows, the highest share any country has enjoyed since the United States in 1968. The success belies widespread predictions rising costs for Chinese labor and a currency that has increased nearly 20% against the dollar in the last decade would cause China to lose market share to cheaper competitors. Instead, China’s manufacturing infrastructure built during the country’s industrial rise of recent decades is keeping exports humming and providing the basis for firms to produce higher-value products.

“China cannot be replaced,” said Fredrik Guitman, formerly China general manager for a Danish maker of silver products, adding that reliable delivery times were more important than price. “If they say 45 days, it will be 45 days.” Still, even as Chinese firms compete in more sophisticated product lines, they are unloading overstocked inventory from entrenched industrial overcapacity in sectors like steel, an irritant in global trading relationships. The United States and seven other countries this week called for urgent action to address a steel supply glut that many blame on China. At the same time, China’s imports from other countries fell sharply – down over 14% in 2015 – leading some economists to suggest China was deploying an “import substitution” strategy that is pushing foreign brands out of its domestic markets.

On Wednesday, Beijing rolled out fresh measures to support machinery exports, including tax rebates, and encouraged banks to lend more to exporters. Machinery and mechanical appliances make up the biggest portion of China’s exports. Such policies may not be welcomed in the United States, where Republican presidential hopeful Donald Trump has called for 45% tariffs on Chinese imports – a message that appears to resonate with American voters. The risk is that the Chinese firms successfully moving up the value chain will see their overseas profits destroyed by a trade war if Trump’s ideas find place in policy.

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Risk it? War is on.

China Risks Global ‘Steel War’ As Tempers Flare (AEP)

China is on a collision course with the world’s leading powers over excess steel output after it refused to sign up to an emergency global plan to cut capacity and eliminate subsidies. The clash comes as fresh data confirms fears that China is still cranking up production and even reopening shuttered plants supposedly due for closure, despite the massive glut on the world market. Chinese mills produced a record 70.65m tonnes in March, 51pc of global output and five times as much as the whole EU. “Just words from China are no longer good enough. It is now clear to everybody that the Chinese have no intention at all of changing the structure of their steel industry,” said Axel Eggert, head of the European steel federation Eurofer. “They refused even to accept basic principles. They don’t recognise the problem, and they are not looking for a compromise,” he said.

The world’s steel-making powers, led by the US, Japan and the EU, agreed to joint steps to tackle the crisis at special OECD summit in Brussels on Monday, but China’s name was conspicuously absent when the final document was released later. This renders the plan meaningless since China’s excesses capacity alone is 400m tonnes, greater than the entire production of Europe and North America. Officials were shocked by the tone of the encounter with the Chinese delegation. “It was eye-opening,” said one source. “The scale of the emergency in the sector means it is now life or death for many companies,” said Cecilia Malmstrom, the EU trade commissioner. Brussels has been slow to roll out anti-dumping sanctions, partly due to pressure from Britain and other states courting China for their own political reasons.

While the US has imposed penalties of 266pc on Chinese cold-rolled steel, the EU has acted more slowly and stopped at 13pc. But the mood is shifting. Mrs Malmstrom said there is no doubt that the surge in Chinese exports is the reason why steel prices have crashed by 40pc this year, insisting that it is imperative to “act quickly” before the crisis asphyxiates European industry. “The situation is putting hundreds of thousands of jobs in the EU at risk. It’s also undermining a strategic sector with importance for the wider economy,” she said. Emmanuel Macron, the French economy minister, said Europe can no longer tolerate the flood of Chinese supply. “You do not respect the rules of world trade. Your steel output is subsidised, and the excess capacity is dumped below cost. It is destroying our productive capacity, and it is unacceptable,” he said.

Anger is also rising on Capitol Hill, with mounting calls from the US Congress for a much tougher stand, a theme echoed daily on the presidential campaign trail. “The American steel industry faces the greatest import crisis in modern history,” said Tim Murphy, head of the Congressional steel caucus. “We’re at the tipping point, with US mills averaging only 70pc of capacity utilisation, a level that is simply not sustainable. We are in real danger of losing this industry and becoming dependent on foreign countries. We can’t let that happen.”

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There’s no reason other than speculation and manipulation for the yen to be where it is.

Yen Falls By Most In 7 Weeks As BOJ Considers Negative-Rate Loans (BBG)

The yen dropped the most in seven weeks after people familiar with the matter said that the Bank of Japan may consider helping financial institutions to lend by offering a negative rate on some loans. Japan’s currency slid against all except one of its 16 major counterparts after the people said a discussion on this may happen in conjunction with any decision to make a deeper cut to the current negative rate on reserves. The people asked not to be named as the matter is private. The BOJ meets April 27-28 to decide on its next policy move. “We thought they would be doing more quantitative easing but it looks like they may be doing more on the negative interest-rate front,” said Joseph Capurso at Commonwealth Bank of Australia.

That’s driving the move lower in the Japanese currency and “if delivered, you’ll get a temporary but significant spike up in dollar-yen. The yen dropped 0.8% to 110.30 per dollar as of 7:06 a.m. in London, the biggest decline since March 1. Japan’s currency weakened 0.9% to 124.68 per euro. Twenty three of 41 analysts surveyed by Bloomberg predict the BOJ will expand stimulus next week. Nineteen forecast the central bank will increase purchases of exchange-traded funds, eight expect a boost in bond buying and eight project the BOJ will lower its negative rate, the survey conducted April 15-21 shows.

Commonwealth Bank recommended buying the dollar against the yen through two-week options to take advantage of the diverging monetary policies of the Fed and the BOJ. National Australia Bank Ltd. said in a report it favors purchasing dollars at current levels before the BOJ meeting, targeting an appreciation to 113 yen. The Federal Open Market Committee meeting April 26-27 will also be closely watched for guidance on how soon U.S. policy makers will raise the benchmark rate after an increase at the end of last year. Traders have increased the odds of a Fed move by December to 63% from about 50% at the end of last week, according to data compiled by Bloomberg based on fed fund futures.

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Isn’t it time to get serious yet?

Draghi Defies German Disfavor With Claim ECB Stimulus Works (BBG)

Mario Draghi has two stubborn adversaries – low inflation everywhere, and low regard in Germany. He’s now extending his offensive on both fronts. A recovery in credit, and output proving resilient to global shocks, are buttressing the European Central Bank’s argument that the range of stimulus measures it bolstered only last month is working. On Thursday, the ECB president used that evidence to make ground against German critics who say he’s on the wrong track. After more than four years at the helm of the central bank, Draghi is still fielding persistent attacks from the ECB’s host country, where a public perception of him as a profligate Italian whose low interest rates are killing retirement savings has become part of the political furniture.

At a press conference in Frankfurt, he fumed that the more critics undermine his stimulus, the more of it he’ll have to do. “Impatience in the markets and in politics can come up like a geyser sometimes, but the ECB has to continue to be as steady as a rock,” said Torsten Slok at Deutsche Bank in New York. “The more it shows up in the data, the easier it is for them to say that their policies are working. The ECB is defending itself and making sure the arguments are solid.” The backdrop to Thursday’s policy meeting, where the Governing Council kept its interest rates on hold after cutting them to record lows in March, was colored by a row stepped up by Germany’s Wolfgang Schaeuble.

Draghi deployed a volley of arguments against the finance minister’s charge that ECB policies are contributing to the rise of anti-euro populism, and the broader assumption that savers are being penalized, adding that Schaeuble either “didn’t mean what he said or didn’t say what he meant.” “In fact real rates today are higher than they were about 20-30 years ago,” Draghi said. “But I’m aware that to explain real interest rates to savers may be difficult.” Draghi has been dogged by sniping in Germany since taking office, with the popular press often using his nationality as shorthand for a tendency to allow high inflation. In fact, he’s had the opposite problem, with price gains too far below the 2% goal for more than three years.

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ZIRP and NIRP kill pensions sytems around the planet. And Draghi claims ‘ECB Stimulus Works’.

Pension Cuts Loom For Millions of Dutch As Big Funds Struggle (DN)

The assets of the Netherlands’ four biggest pension funds have fallen again, making it more likely that millions of people will face pension cuts next year. By law, a pension fund must have a coverage ratio of 105%, meaning its assets outweigh its obligations by 5%. However, that of the massive civil service fund ABP has now gone down to 90.4%, a drop of seven%age points since the end of 2015. Health service fund Zorg & Welzijn and the two engineering funds also have a coverage ratio of around 90%. ‘Our financial position remains worrying,’ said ABP chairwoman Corien Wortmann-Kool. ‘We are heading to the danger zone and that means there is a real risk of a pension cut in 2017.’ ABP is one of the biggest pension funds in the world. The heads of the other three funds have made similar statements. If the pension funds have a coverage ratio of below 90% at the end of the year, they will have to cut pensions.

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“..a joint currency that enabled its strongest member to execute a beggar-thy-neighbor mercantilist trade policy that penalized countries without the size or drive of Germany..”

Eurozone Mess Can’t Be Fixed; It Can Only Be ‘Muddled Through’ (MW)

If you’re waiting for international policy makers to pull a rabbit out of the hat and solve the euro problem, stop holding your breath. After a generally a desultory meeting of the IMF in Washington last week, the prevailing pessimism about the future of the euro came grimly to the fore in one of the many meetings held on the sidelines of the semiannual IMF gathering. Two dozen policy makers convened by the Official Monetary and Financial Institutions Forum (OMFIF), a private London-based group, met this week to discuss the future of the European Union’s joint currency. The off-the-record discussion involved an international array of current and former government officials, central bankers, and private-sector financiers.

The verdicts ranged from “deeply pessimistic” to “not ready to give up” – perhaps the most optimistic assessment at the meeting – and the group in its assembled wisdom concluded that there are no realistic solutions and the only course of action they could see is “muddling through.” They rehearsed all the usual analysis of what went wrong – an attempted common currency without the underpinning of joint fiscal policy, a banking union, and most importantly, a political union with an institutional infrastructure for making decisions. Without this follow-through on the original plan for “an ever closer union,” the EU has stumbled along a path of “incompetence,” with individual countries acting only in their own interests.

Even the ECB, the only EU-wide institution that has shown itself capable of taking action in this environment, came in for criticism because its successive moves to ease the stress in the system left the political leaders off the hook in coming to terms with the underlying issues. And yet, participants noted, the European public seems reluctant to give up the euro. Not even Greece, which has suffered terribly in the straitjacket of a common currency with Germany, is willing to give it up. So the answer is muddling through. And muddling through is one thing Europeans excel at, even though it has brought mixed results. Europe, after all, muddled through the arms buildup in the early 20th century to World War I. It muddled through to the banking collapse of 1931 (which contributed more to the Great Depression in the U.S. than the 1929 stock market crash).

Then it muddled through into fascism and World War II. Rebuilding from the rubble of that conflict led to a relatively brief period of constructive behavior as the continent, shielded by the U.S. defense umbrella, built new democracies and an ever-widening free trade zone. As U.S. influence — and interest — waned, Europe began again to resort to muddling through as a way of coping with stress. It muddled through the crisis in Bosnia and genocidal conflict at its very doorstep, until the U.S. intervened and sorted things out. It muddled through into a joint currency that enabled its strongest member to execute a beggar-thy-neighbor mercantilist trade policy that penalized countries without the size or drive of Germany, slashing their standard of living and reducing whole swaths of the populations to penury. Then it muddled through into a refugee crisis that threatens the very fabric and identity of individual nations, giving rise to a xenophobic backlash that harkens back to the days of Depression and fascism less than a century ago.

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Oh boy, are we getting tough or what?!

US Regulators Line Up to Consider New Executive Compensation Proposal (WSJ)

Federal regulators are lining up to consider a new rule to rein in Wall Street’s executive compensation nearly a decade after the financial crisis. The National Credit Union Administration plans to meet Thursday, giving Wall Street banks, investors and others the first glimpse of the regulators’ latest effort to overhaul Wall Street pay rules for top executives. Next week, two other regulators are scheduled to consider the revised plan, according to a government notice posted Wednesday. The rule would require banks to retain much of an executive’s bonus beyond the three years already adopted by many firms, people familiar with the matter said. The board of the Federal Deposit Insurance Corp., led by Chairman Martin Gruenberg, will meet Tuesday to vet the compensation proposal.

The FDIC board also includes Comptroller of the Currency Thomas Curry. The Office of the Comptroller of the Currency will likely consider the proposal separately later the same day, according to a person familiar with the matter. On Thursday, the NCUA will release documents, including a roughly 250-page preamble to the joint rule, when the board meets at 10 a.m. EDT. It will also unveil rules specifically drafted for a handful of federally insured credit unions with $1 billion or more in assets, including the Navy Federal Credit Union and State Employees Credit Union. Six agencies have joint responsibility for rewriting the original government plan on Wall Street pay: the FDIC, the OCC, the NCUA, the Federal Reserve Board, the Securities and Exchange Commission and the Federal Housing Finance Agency.

All six are required to sign off on the draft measure before it can be released to the industry and the public for comment. Representatives from the Fed and SEC declined to comment on the timing of their meetings to consider the proposal. The FHFA plans to consider the proposal soon, according to a person familiar with the matter. The effort to complete the rule, which has been under way for five years, got a nudge from President Barack Obama last month at a White House meeting of top financial regulators. The president urged regulators to wrap up the executive compensation rule before he leaves office early next year. It is unclear whether the agencies will be able to coordinate their efforts and get the rule completed by then.

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Little bit wishful thinking, perhaps, Gillian?!

How Goldman Sachs’ Vampire Squid Became A Flattened Slug (Tett)

A decade ago, Goldman Sachs reported that its return on common shareholder equity had hit a dazzling 39.8%. It symbolised a gilded age: back in 2006, as markets boomed, the power — and profits — of big banks seemed unstoppable. How times change. This week, American banks unveiled downbeat results, with revenues for the biggest five tumbling 16% year-on-year. But Goldman was even weaker: net income was 56% lower, while return on equity, a key measure of profitability, was 6.4%, below even the sector average in 2015 of 10.3%. A bank which was once so adept at sucking out profits that it was called a “vampire squid” (by Rolling Stone magazine) is thus producing returns more commonly associated with a utility. The phrase “flattened slug” might seem appropriate.

Is this just a temporary downturn? Financiers certainly hope so. After all, they point out, this week’s results did feature some upbeat (ish) points. None of America’s banks actually blew up in the first quarter of the year, even though markets gyrated in dramatic ways; the post-crisis reforms have improved risk controls and reserves. Meanwhile, banking in America looks healthier than in Europe, where the reform process has been slower. Overall credit quality at American banks, outside the energy sector, does not seem alarming. Net interest margins are now increasing a touch, after several years of decline, because the Federal Reserve has raised rates. The last quarter’s results might have been depressed by temporary geopolitical woes, such as business uncertainty about Brexit, the American elections, oil prices and the Chinese economy.

Once this angst fades away later this year, returns may rebound; analysts expect the Goldman ROE, for example, to move towards 10% later this year. “The market feels a little fragile,” says Harvey Schwartz, its chief financial officer. “[But] it feels like that is behind us.” Perhaps. But even if this “optimism” is justified, nobody should ignore the cognitive shift. After all, a decade ago, an ROE of 10% was considered a disaster, not a relief, at Goldman Sachs. So perhaps the most important lesson from this week is this: if American regulators had hoped to make the banks look truly dull — not dazzling — in this post-crisis era, they are now succeeding better than anyone might have thought.

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“If there is a haircut on bank deposits it will be the end and, so far, that is the only measure they haven’t taken. If Greece defaults it will be impossible to find oil, impossible to find medicines. And this time round everything seems possible.”

Greek Talks With Lenders Fraught As Fears Grow Of Default (G.)

The Hilton hotel in Athens makes the perfect backdrop for high-intensity talks. Its ambience is subdued, its corridors hushed, its meeting rooms an oasis of tranquility. When Greece, in one of its many stand-offs with the international creditors keeping it afloat, finally won the right to conduct negotiations outside the confines of government offices, it seemed only natural that they should be held at the hotel. However, in recent weeks the talks have assumed an increasingly nervous edge. An economic review that should have been completed months ago has been beset by wrangling as Alexis Tsipras’s leftist-led government has argued with lenders over the terms of a bailout agreed last summer.

The €86bn rescue programme agreed in July 2015 – the debt-stricken country’s third in six years – followed months of high-octane drama that saw Athens being pushed to the brink of bankruptcy and euro exit. Now, less than a year later – and with a crucial meeting of eurozone finance ministers lined up for Friday – a sense of crisis has returned to Greece. With politicians indulging in the angry rhetoric that put Athens on a collision course with lenders last year, investors have begun to worry. Yields on government bonds have risen, protesters have taken to the streets, and “Grexit” – the catch-all word that so conjured up Greece’s battle with economic meltdown – is being murmured again.

Against a backdrop of maturing debt – the country must repay €5bn to the ECB and IMF in June and July – commentators have begun to talk in terms of fatal miscalculation. “History is made of accidents which were not the result of some secret plan, but a string of errors, human weaknesses and obsessions,” wrote Alexis Papahelas in the conservative daily Kathimerini. “Lets hope we will avoid that.” On the street, the uncertainty has not only had a deadening effect on an economy already battered by years of withering austerity; it has also created mounting anxiety among a populace that has seen per capita GDP levels drop by 28%, unemployment nudge 30%, more than one in four businesses close and poverty afflict one in three.

After defying the doomsayers, there are fears Europe’s most indebted country could now be heading towards a disorderly default. “There is no one I know who isn’t worried,” says Yannis Tsandris, a private sector retiree whose pension has been cut by almost a third. “If there is a haircut on bank deposits it will be the end and, so far, that is the only measure they haven’t taken. If Greece defaults it will be impossible to find oil, impossible to find medicines. And this time round everything seems possible.”

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How peaceful do you think those Olympics are going to be?

The Real Reason Dilma Rousseff’s Enemies Want Her Impeached (Miranda)

The story of Brazil’s political crisis, and the rapidly changing global perception of it, begins with its national media. The country’s dominant broadcast and print outlets are owned by a tiny handful of Brazil’s richest families, and are steadfastly conservative. For decades, those media outlets have been used to agitate for the Brazilian rich, ensuring that severe wealth inequality (and the political inequality that results) remains firmly in place. Indeed, most of today’s largest media outlets – that appear respectable to outsiders – supported the 1964 military coup that ushered in two decades of rightwing dictatorship and further enriched the nation’s oligarchs. This key historical event still casts a shadow over the country’s identity and politics.

Those corporations – led by the multiple media arms of the Globo organisation – heralded that coup as a noble blow against a corrupt, democratically elected liberal government. Sound familiar? For more than a year, those same media outlets have peddled a self-serving narrative: an angry citizenry, driven by fury over government corruption, rising against and demanding the overthrow of Brazil’s first female president, Dilma Rousseff, and her Workers’ party (PT). The world saw endless images of huge crowds of protesters in the streets, always an inspiring sight. But what most outside Brazil did not see was that the country’s plutocratic media had spent months inciting those protests (while pretending merely to “cover” them). The protesters were not remotely representative of Brazil’s population.

They were, instead, disproportionately white and wealthy: the very same people who have opposed the PT and its anti-poverty programmes for two decades. Slowly, the outside world has begun to see past the pleasing, two-dimensional caricature manufactured by its domestic press, and to recognise who will be empowered once Rousseff is removed. It has now become clear that corruption is not the cause of the effort to oust Brazil’s twice-elected president; rather, corruption is merely the pretext. Rousseff’s moderately leftwing party first gained the presidency in 2002, when her predecessor, Luiz Inácio Lula da Silva, won a resounding victory.

Due largely to his popularity and charisma, and bolstered by Brazil’s booming economic growth under his presidency, the PT has won four straight presidential elections – including Rousseff’s 2010 election victory and then, just 18 months ago, her re-election with 54 million votes. The country’s elite class and their media organs have failed, over and over, in their efforts to defeat the party at the ballot box. But plutocrats are not known for gently accepting defeat, nor for playing by the rules. What they have been unable to achieve democratically, they are now attempting to achieve anti-democratically: by having a bizarre mix of politicians – evangelical extremists, far-right supporters of a return to military rule, non-ideological backroom operatives – simply remove her from office.

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Why bother with cheat software?

All Diesel Cars’ Emissions Far Higher On Road Than In Lab (G.)

Diesel cars are producing many times more health-damaging pollutants than claimed by laboratory tests, with some emitting up to 12 times the EU maximum when tested on the road, according to a government investigation undertaken following the Volkswagen scandal. A Department for Transport (DfT) study of cars made by manufacturers such as Ford, Renault and Vauxhall found there was a vast difference in nitrogen oxide emissions measured in the laboratory and under normal driving conditions. Not a single car among 37 models tested against the two most recent nitrogen oxide emissions standards met the EU lab limit in real-world testing, with the average emissions being more than five times as high. However, the DfT said it had found no vehicles outside the VW group with systems in place to deliberately rig emissions figures.

Robert Goodwill, the junior transport minister, said: “Unlike the Volkswagen situation, there have been no laws broken. This has been done within the rules.” The minister denied that the findings meant the current emissions testing regime was a farce. “But certainly I am disappointed that the cars that we are driving on our roads are not as clean as we thought they might be. It’s up to manufacturers now to rise to the real-world tests and the tough standards we’re introducing,” he said. The DfT exercise was ordered after it emerged that Volkswagen had allegedly used technology to cheat emissions tests. It measured Nox, or nitrogen oxide emissions. Nitrogen oxide helps to form ozone smog that can badly affect people with chest conditions such as asthma.

The tests were carried out by a team led by Ricardo Martinez-Botas, professor of mechanical engineering at Imperial College London. Among the vehicles tested were 19 models that meet the latest Euro 6 limit of 80mg/km NOx emissions in laboratory tests. Euro 6 was introduced for all new cars sold after September last year. When driven in a real-world simulation of urban, rural and motorway travel, the average was nearer to 500mg/km, with some cars getting close to 1,100mg/km. Among the new models tested that are meant to comply with the Euro 6 standard were the Ford Focus, which had a real-world emission about eight times above the EU limit, the Renault Megane, whose emissions were more than 10 times higher, and the Vauxhall Insignia, almost 10 times higher.

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Already “The scandal has wiped around 40% off Mitsubishi’s market value..”

Mitsubishi Scandal Deepens After US Demands Test Data (G.)

The scandal engulfing Mitsubishi Motors has deepened, sending its shares to a new low after US authorities said they had requested information from the Japanese automotive group. Mitsubishi admitted this week that it manipulated test data to overstate the fuel efficiency of 625,000 cars and there are fears that more models may be involved. Government officials raided one of its offices on Thursday. The scandal has wiped around 40% off Mitsubishi’s market value, amounting to losses of $3.2bn over three days. The shares fell nearly 14% on Friday, following declines of 20% on Thursday, when they were suspended, and 15% on Wednesday. An official at the US National Highway Traffic Safety Administration told Reuters that the regulator had asked Mitsubishi for information on vehicles sold in the US.

Japanese government officials said Mitsubishi could be responsible for reimbursing consumers and the government if investigations conclude that the vehicles were not as fuel-efficient as claimed. Transport minister Keiichi Ishii told a news conference on Friday: “This is a serious problem that could lead to the loss of trust in our country’s auto industry.” He said he wanted Mitsubishi to examine the possibility of buying back affected cars. Internal affairs minister Sanae Takaichi said the government would also ask the carmaker to pay for any subsidies granted to consumers if its cars are found to fail fuel economy standards, Jiji news agency reported. Japanese media reported that Mitsubishi had submitted misleading mileage data on its i-MiEV electric car, which is also sold overseas. The previously disclosed models whose fuel economy readings Mitsubishi has admitted to manipulating are only sold in Japan – four of its mini-cars, two of which it manufactured for Nissan.

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Subsidies.

Why UK Landed Gentry Are So Desperate To Stay In The EU (G.)

The estate agent Carter Jonas established its reputation running the estates of the Marquess of Lincolnshire. “Some of the biggest property owners in the country are our loyal clients,” boasts its website. And, in a recent poll of these landowning clients, 67% of them said that Britain should stay in the EU. So why all this Euro-enthusiasm in the Tory heartlands and among the landed gentry? “Should the UK vote to leave the EU, the CAP subsidies will likely be reduced,” Tim Jones, head of Carter Jonas’s rural division, explained. Thank you, Tim, for putting it so clearly. We understand. A massive 38% of the entire 2014-20 EU budget is allocated as subsidies for European farmers. It is far and away the biggest item of euro expenditure, about €50bn a year.

If these billions were being used to prop up a heavy industry – steel, for example – then the neoliberals would be up in arms, complaining like mad that if an industry can’t cope with a free market then it should be left to die. Creative destruction, they call it. But, for some reason, when it comes to agriculture, different rules apply. Farms are not called “uneconomic” in the same way that pits and factories are. So every British household coughs up about £250 a year and hands it over to the EU, which hands it over to people like the Duke of Westminster – already worth £7bn himself. In 2011, the duke received £748,716 in EU subsidies for his various estates. So, too, Saudi Prince Bandar (he of the dodgy al-Yamamah arms deal), who pocketed £273,905 of EU money for his estate in Oxfordshire.

The common agricultural policy is socialism for the rich. It’s a mechanism to buttress the aristocracy – who own a third of the land in this country – from the chill winds of economic liberalism. So why are we hearing so little about all of this in the current debate over Europe? Because the right doesn’t want to worry its landowning friends and the left has somehow persuaded itself that the EU is a progressive force – so it suits no one’s purpose to raise this issue. Yet it’s a huge deal. For the European Union has become a huge and largely invisible way of redistributing wealth from the poor to the rich, subsidising lord so-and so’s grouse moor, while redundancies are handed out to workers at Port Talbot (whose jobs the government can’t help subsidise because of EU rules).

But even more problematic is the way our massively subsidised agricultural sector negatively affects farmers in the developing world. “Trade not aid” has been David Cameron’s repeated mantra for dealing with poverty in the developing world. But not only does the CAP subsidy to European farmers make it impossible for the unsubsidised African farmer to compete fairly in European markets, but it also creates situations where food is overproduced in Europe – remember butter mountains, milk lakes etc.

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While this crazy barter goes on, the short stick is for the refugees.

Angela Merkel Faces Balancing Act On Visit To Turkey (G.)

Angela Merkel is facing dual pressure to both raise freedom of speech issues and patch up fraying diplomatic relations with Turkey during a visit to Gaziantep province on Saturday. The issue of visa-free travel, one of the key elements of the month-old deal between the European Union and Turkey, is expected to be at the top of the agenda as the German chancellor visits the country alongside the European Council president, Donald Tusk, and European commission vice-president Frans Timmermans. On Tuesday, Turkey’s prime minister, Ahmet Davutoglu, threatened to pull out of the deal if no progress was made on the visa arrangement.

But in Germany, Merkel is under growing pressure to show more spine in her dealings with the Turkish government, after giving in to Recep Tayyip Erdogan’s request for the comedian Jan Böhmermann to be prosecuted for reading out a poem that insulted the president. In the run-up to Merkel’s Gaziantep trip, the secretary general of the Social Democrats, a junior party in the governing coalition, has called on Merkel to send out a “strong message on the issue of freedom of speech”. “Without this basic right, democracy does not work – the Turkish government too has to recognise that,” Katarina Barley told the newspaper Bild.

Coming on the anniversary of the foundation of Turkey’s parliament, and a day before many people commemorate the start of the Armenian genocide, secularists and minorities in Turkey too will hope for a signal against Turkey’s authoritarian turn from the German chancellor. The German government has so far refrained from providing details of the chancellor’s schedule during her trip. In recent days Merkel has been struggling to limit the damage caused by the Böhmermann affair. Even though the comedian is unlikely to face more than a financial penalty, the incident has taken its toll on the chancellor’s authority in the public eye, with her personal approval ratings dropping by over 10 percentage points in a recent poll.

In another poll, 66% of the German public said they disapproved of the chancellor’s decision to authorise criminal proceedings against the comedian. The justice minister Heiko Maas announced on Thursday that he would present a draft bill to abolish the law on “insulting a foreign head of state” that lies at the centre of the Böhmermann affair before the end of this week. Merkel had originally promised to abolish the law by January 2018. Were the relevant paragraph of the penal code scrapped before Böhmermann goes on trial, the chancellor would look even more exposed. Diplomatic ties between Germany and Turkey were further strained when the journalist Volker Schwenck of the public broadcaster ARD was detained at Istanbul airport on Tuesday morning and denied entry to the country. Schwenck had previously reported from rebel-held areas in northern Syria.

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Mar 182016
 
 March 18, 2016  Posted by at 9:20 am Finance Tagged with: , , , , , , , , , ,  


Idomeni: where human rights go to die

Either Something Spooked The Fed Or There Is A “Central Bank Accord” (ZH)
Next Financial Crisis Could Overwhelm World’s Defenses, IMF Says (BBG)
Global Currencies Soar, Defying Central Bankers (WSJ)
Yen Rally Is Piling Pressure On BOJ (CNBC)
China Adjusts Yuan by Biggest Margin Since November (WSJ)
Bank IPOs Expose Dark Arts Of Chinese Finance (Reuters)
China Home Prices Rise Most In 2 Years, Big Cities Bubble Worries (Reuters)
UK Household Debt Binge Has No End In Sight (Telegraph)
800,000 Barrels Of Oil Go Missing Every Day (WSJ)
Brazil Tumbles Like ‘House Of Cards’ In Crisis
Merkel Dodges European Banking Union Push From Draghi (BBG)
Catalonia Said to Court Default in Spanish Game of Chicken (BBG)
Italy Passes Law To Make Supermarkets Give Wasted Food To Charity (Ind.)
EU and Turkey Harden Positions Over Latest Refugee Plan (FT)
Greece Has Much Work To Do If EU Reaches Refugee Deal With Turkey (Kath.)
Idomeni, The Train Stop That Became An ‘Insult To EU Values’ (Guardian)
‘Refugees’ and ‘Migrants’- There Is A Distinction That Matters (UNHCR)

The US beggaring all of its neighbors. Short term only.

Either Something Spooked The Fed Or There Is A “Central Bank Accord” (ZH)

Yesterday’s FOMC meeting and press conference generated widespread unease. My personal uncomfortable feeling was reminiscent of a time many decades ago when a date stood me up and provided an excuse that made little sense. Simply put, the combination of the FOMC’s forecasts, economic assessment, and guidance on the future path of interest rates were incongruous and disconnected to their ‘data dependency’ message. This week was a curious time to recalibrate to a far more dovish stance since it has followed clear improvement in labor markets, inflation indicators, and inflationary expectations. Even with the modest downward adjustments to their economic projects, the Fed’s goals and mandates have not only (basically) been achieved but they seemingly have economic momentum behind them as well.

Core year-over-year inflation measures have been rising. Core CPI rose to 2.3% earlier this week. The PCE deflator has risen to 1.7% which already stands above the Fed’s year-end estimate. The Fed once again lowered the level it believes to be its longer-run estimate of the natural rate to 4.8%. Regardless, with the unemployment rate currently at 4.9%, the Fed is implying by its belief in the Philips Curve that wages will soon accelerate. Despite modest changes in the Fed’s economic projections, the Fed is forecasting growth above its estimate of potential growth. So how is it possible that a ‘data dependent’ Fed turned dovish? Reporters tried to address these questions during the press conference. Yellen was uncharacteristically opaque. She deflected questions.

It had the appearance of a coach who had a specific game plan, but the familiar playbook was replaced on the day of the game. The market place is abuzz with two possibilities for such a shift. The first possibility is that something spooked the board. The market is only learning now from Bernanke’s book that QE2 and QE3 were initiated because of fears of the European crisis, not due to a shortfall in economic targets as claimed. Most people believe that the Fed deferred a hike in September due to “international developments”. The first possibility may have been the catalyst for the second. The second possibility being discussed is that some type of central bank accord was reached at the G20 meeting in Shanghai February 25-26.

Maybe they noticed that diverging central bank policies were leading to extreme market volatility and accusations of currency wars. It is not difficult to envision an agreement where central banks agreed to provide more stimuli, if the Fed agreed to pause in order to not offset the effects of such moves. This would mean that the Fed would have to ignore economic data. Since markets have become more correlated, a pause would allow the dollar to weaken, and in turn, take pressure off of China to devalue the yuan. This would also help commodities to rise and emerging markets to soar. As global financial conditions begin to improve, the Fed would then have better cover under which to hike interest rates.

[..] The time has come to end NIRP and ZIRP, and other forms of aggressive central bank experimentation and the dangerous consequences that come with them. It’s time they take a giant collective BURP, I mean BIRP (Basic Interest Rate Policy).

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No kidding. But what happened to the recovery then?

Next Financial Crisis Could Overwhelm World’s Defenses, IMF Says (BBG)

The global financial safety net has become increasingly fragmented, making it harder to respond to crises in a world roiled by volatile capital flows, International Monetary Fund staffers warned. Defenses haven’t kept up with the growth of external debt in recent years, the Washington-based fund said in a report released Thursday. As a result, a system-wide shock could overwhelm the world’s crisis resources, which include nations’ foreign-exchange reserves, central-bank swap lines, regional funds such as the euro area’s European Stability Mechanism, and the IMF itself, the lender said. Financial cycles have been “growing in amplitude and duration, capital flows have become more volatile, and non-banks have gained importance, altering the nature of systemic risk,” IMF staff said in the report, which was presented to the fund’s executive board on March 7.

In a major event, “the needs could exceed the collective resources available,” the fund said. The paper takes stock of the global monetary system that has prevailed since 1973, the year that marked the collapse of the Bretton Woods system of exchange rates pegged to the dollar. At a meeting in Shanghai last month, Group of 20 finance ministers and central bankers said the IMF’s work would inform the group’s study of the “evolution” of the world’s financial architecture. The current monetary system, with the freedom it offers to countries to choose their exchange-rate strategy, has proven more flexible in responding to shocks, the IMF said. But the 2008 crisis exposed the system’s weaknesses, including a lack of financial oversight. Since then, the global economy has continued to undergo major structural shifts that are having a significant effect on the international monetary landscape, the IMF said.

The growth of emerging-market and developing countries has made the global economy more “multipolar,” fund staff said. Still, financial markets in such nations aren’t as deep as in advanced economies, and the system remains highly dependent on the dollar as a reserve currency. The central role of one or two reserve currencies can have significant spillover effects on other countries, especially those with open economies and less developed financial markets, the IMF said. At the same time, the globalization of finance has led to a dramatic increase in capital flows. “Periodic episodes of high capital flow volatility appear to have become a feature of the new global landscape,” putting pressure on emerging markets in particular, the IMF said.

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No, what happens is the USD weakens. Deliberate ploy.

Global Currencies Soar, Defying Central Bankers (WSJ)

Efforts by many of the world’s central banks to weaken their currencies are failing, raising concerns about whether policy makers are losing the ability to wield control over financial markets. This was the case again in Japan on Thursday, when the dollar fell 1.1% against yen, to ¥111.39. Despite the Bank of Japan’s efforts to push down its currency and jump-start the economy with negative interest rates, the yen is up 8% this year and is at its strongest level against the dollar since October 2014. European central bankers are having similar problems containing the strength of the euro and other currencies. These difficulties are a reminder that the long stretch of exceptionally low rates in response to the 2008 financial crisis has created market distortions that may be difficult for central bankers to contain.

This disconnect could produce more volatility in financial markets. Even if investors can predict what actions central banks are likely to take, they are having a hard time predicting how markets will react, potentially sparking a pullback from riskier assets, such as emerging markets or commodities. It also underscores long-standing concerns about the prospects for global growth. A number of central bankers are reaching for the lever of lower interest rates to weaken their currency and make their exports more competitive. But because policy makers are all following the same approach, they are in effect canceling each other out. “There is a rising concern that central banks are testing the limits of their policies,” said Brian Daingerfield, a currency strategist at RBS Securities. “Each time you take a tool out of the tool kit, it gets closer to being empty.”

The European Central Bank has struggled with its efforts to weaken the euro, which gained 0.8% against the dollar on Thursday. Last week, the ECB cut interest rates further into negative territory, yet the currency is up 4.2% this year. Even some central banks with less actively traded currencies are having a hard time guiding markets. Norway’s central bank on Thursday cut its main interest rate to a record low of 0.5%, and a bank governor said he wouldn’t rule out negative rates, in which central banks charge big lenders to hold deposits. The Norwegian krone gained more than 1% against the dollar and was up against the euro.

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Japan may have to sit this one out.

Yen Rally Is Piling Pressure On BOJ (CNBC)

The strengthening yen could see Japan’s central bank eke out more stimulus as early as next month, confounding expectations for policy inaction following January’s surprise move to negative interest rates. The yen rallied to 110 against the greenback during Thursday’s U.S. session, its strongest level since October 2014, amid relentless dollar selling after the Federal Reserve played down prospects for tighter monetary policy on Wednesday. “At these [yen] levels, it is hard to see the Bank of Japan not extending their stimulus program in some form at their April 28 meeting,” IG market strategist Angus Nicholson said on Friday. A stronger yen hurts Japan’s economy and is especially detrimental to the export sector because it makes local goods more expensive for overseas buyers, providing a fillip to rival Asian manufacturers with weaker currencies, such as South Korea.

The central bank held fire at Monday’s monetary policy review, as anticipated, and economists believed it would continue to take a wait-and-see approach to assess the impact of January’s negative interest rates decision. But that may no longer be the case. “If USD/JPY drifts lower again, we expect more aggressive action from the Bank of Japan,” Kathy Lien at BK Asset Management said on Friday. As an indicator of just how worrying the latest currency strength is to Japan, strategists believe the BOJ intervened in markets on Thursday in attempt to move the yen off its 16-month peak. “In a matter of minutes right around lunchtime in the U.K., USD/JPY jumped nearly 100 pips from its low of 110.67. This is the third time in two months that the BOJ stepped in to buy USD/JPY below 111 as they clearly don’t want to see the currency pair trading on the 110 handle,” observed Lien.

During early Asian trade on Friday, the pair hovered around 111. Japanese finance minister Taro Aso said on Friday that he was closely monitoring the currency’s moves, but minutes released at the market open from the central bank’s January meeting made no mention of the yen. “At 113, the BoJ has leeway to wait but at 110-111 with the risk of further losses, they may not be able to forestall easing for much longer,” said Lien.

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When the USD starts rising again, and it will, China will have to move in the opposite direction.

China Adjusts Yuan by Biggest Margin Since November (WSJ)

China on Friday set its currency 0.52% stronger against the dollar, in the yuan’s steepest one-day fixing increase since November, reflecting the weakness in the dollar after the U.S. Federal Reserve moved to a more dovish tone. The People’s Bank of China set the currency’s daily midpoint at 6.4628 yuan to a dollar, reaching the yuan’s strongest level against the U.S. dollar since Dec. 16. The yuan now trades at 6.4645 to a dollar versus its last official closing of 6.4930. The steep gain in the yuan’s fixing Friday is only surpassed by the 0.54% gain in the daily benchmark on Nov. 2, which remains the biggest daily adjustment since the yuan was de-pegged from the dollar in 2005. In each daily trading session, the central bank allows the dollar/yuan rate to move no more than 2% above or below the benchmark, or the central parity rate, it sets.

Analysts have linked the November appreciation to China’s efforts to have the yuan included in the IMF’s basket of reserve currencies. The IMF announced its decision to include the yuan at the end of November. For Friday’s move, however, traders say the jump in the central parity rate reflects the strength of major currencies in the valuation basket used by the PBOC in determining the daily currency benchmark. The euro, Japanese yen, and Australian dollar have made significant gains against the U.S. dollar after the Fed, at the conclusion of its monetary policy meeting on Wednesday, toned down its expectations of the pace of interest rate increases. The euro and the Japanese yen have both risen by nearly 2% against the dollar since the Fed suggested it would likely only raise the benchmark rate just twice this year, down from earlier projections of four increases.

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Wall Street 10 years ago, all over again.

Bank IPOs Expose Dark Arts Of Chinese Finance (Reuters)

Hong Kong’s stock market is shining a new light on the dark arts of Chinese finance. The country’s mid-sized lenders have become skilled at repackaging loans to look like lower-risk investments. Two impending share offerings from state-backed banks underscore how such wizardry has fueled growth. In recent years mid-sized Chinese banks have devoted an increasing proportion of their balance sheets to various investment products, often issued by other financial institutions. These vehicles, known as trust plans, asset management plans or wealth management products, tend to be backed by loans or bonds, though it’s often hard to tell exactly where the money has ended up. What’s clear, however, is that Chinese banks find this business more attractive than regular lending.

This may be because it requires them to hold less capital than for corporate loans, and also carry fewer provisions for possible bad debts. To see how important this business has become, just look at China Zheshang Bank, which is based in Hangzhou, the home town of e-commerce giant Alibaba. It is currently completing a $1.75 billion initial public offering in Hong Kong. At the end of 2013, Zheshang had less than $3 billion of debt instruments, such as wealth management products, on its balance sheet. By the end of last year this had exploded to $66 billion – 42% of its total assets. Income and fees from these activities – which the bank calls “Treasury Business” – brought in a staggering 80% of pre-tax profit last year.

It isn’t alone. Bank of Tianjin, which is seeking to raise $1.23 billion from Hong Kong investors, has also embraced what it calls “non-standard credit”. The group, whose shareholders include Australia’s ANZ, had $19 billion of such loans outstanding in September last year – three times as much as at the end of 2012. Chinese banks’ increasing dependence on these financial instruments raises several risks. For one, it means that long-term and illiquid loans are increasingly funded with short-term investments which are susceptible to a sudden loss of confidence. Second, it increases the web of links between banks and other financial institutions, increasing the vulnerability of the overall system. Rapid growth also raises the risks of loose lending. Financial sorcery rarely ends well.

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Government credibility erodes further.

China Home Prices Rise Most In 2 Years, Big Cities Bubble Worries (Reuters)

China’s home prices rose at their fastest clip in almost two years in February thanks to red-hot demand in big cities, but risks of overheating in some places combined with weak growth in smaller cities threaten to put more stress on an already slowing economy. Average new home prices in 70 major cities climbed 3.6% in February from a year ago, quickening from January’s 2.5% rise, according to Reuters calculations on Friday. That was the quickest year-on-year increase since June 2014, and encouragingly, 32 of 70 major cities tracked by the NBS saw annual price gains, up from 25 in January. Ordinarily, that should be welcome news for policymakers who have rolled out a raft of stimulus measures to support an economy growing at its slowest pace in a quarter of a century.

But the divergence in home prices – surging values in bigger cities and depressed markets in smaller cities plagued by a supply glut – makes Beijing’s job harder as it looks to reanimate growth without inflating asset bubbles. “The government’s all-out encouragement of housing sales seems to be working, but at the cost of surging prices in big cities,” said Rosealea Yao at Gavekal Dragonomics in Beijing. “These surges in big cities are not sustainable and would increase uncertainties and instability in the overall housing market.” The data showed tier 1 cities, including Shenzhen, Shanghai and Beijing, remained the top performers, with prices surging 56.9%, 20.6% and 12.9% respectively. “Prices in first-tier cities are very expensive now, it’s hard for new families to afford a home,” said Tan Huajie, vice president China’s biggest property firm Vanke.

The trouble is that speculators and ordinary investors, who have been shaken by the summer crash in mainland stock markets, are increasingly ploughing their money into the housing market – most of it going to the frothy sector in big centers. A slowing economy has also meant most jobs are in the biggest cities, drawing more people into these places and feeding the insatiable demand for homes. A breakdown of NBS data showed that a slew of government measures and increased lending has failed to arrest persistent softness in property markets in smaller cities where a glut of unsold houses have weighed on prices. Most third-tier cities still saw on-year prices drops in February, though the declines eased from the previous month.

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How Britain keeps the illusion going.

UK Household Debt Binge Has No End In Sight (Telegraph)

Britain’s credit binge has no end in sight as weak pay growth and low interest rates encourage households to load up on debt, official forecasts show. The Office for Budget Responsibility (OBR) said UK households were on course to spend more than they earned for the rest of the decade. Such a long period of households living so far beyond their means would be “unprecedented”, the fiscal watchdog said. Households are expected to spend £58bn more than they earn this year, rising to £68bn by the end of the decade. This is up from respective deficit forecasts of £41bn and £49.2bn in November. The OBR said data suggested spending had “significantly outpaced the growth of labour income” at the end of last year.

Consumers are expected to raid their savings to fuel consumption growth. Borrowing over the next five years would also be supported by the Bank of England’s “extremely accommodative monetary policy”. “The persistence of a household deficit of this size would be unprecedented in the latest available historical data, which extend back to 1987,” the OBR said in its latest UK healthcheck. It said comparable data stretching back to the early 1960s also “showed the household surplus moving into negative territory in only one year between 1963 and 1987”. The eight years of deficits forecast by the OBR contrast with a household surplus of £37.7bn in 2012 as Britons tightened their belts in the wake of the financial crisis and saved more.

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“..The agency found that “[statistical] limitations can introduce errors into the data, although the magnitude and direction of these errors are not clear.”

800,000 Barrels Of Oil Go Missing Every Day (WSJ)

There is mystery at the heart of the oversupplied global oil market: missing barrels of crude. Last year, there were 800,000 barrels of oil a day unaccounted for by the International Energy Agency, the energy monitor that puts together data on crude supply and demand. Where these barrels ended up, or if they even existed, is key to an oil market that remains under pressure from the glut in crude. Some analysts say the barrels may be in China. Others believe the barrels were created by flawed accounting and they don’t actually exist. If they don’t exist, then the oversupply that has driven crude prices to decade lows could be much smaller than estimated and prices could rebound faster. Whatever the answer, the discrepancy underscores how oil prices flip around based on data that investors are often unsure of.

Barrels have gone missing before, but last year the tally of unaccounted-for oil grew to its highest level in 17 years. At a time when the issue of oversupply dominates the oil industry, this matters. “If the market is tighter than assumed due to the missing barrels, prices could spike quicker,” said David Pursell at energy-focused investment bank Tudor, Pickering, Holt. Here’s how a barrel of crude goes “missing” in the data. Last year, the IEA estimated that on average the world produced around 1.9 million barrels a day more crude than there was demand for. Of that crude, 770,000 barrels went into onshore storage while roughly 300,000 barrels were in transit on the seas or through pipelines. That left roughly 800,000 barrels a day unaccounted for in the data. Global oil supply is about 96 million barrels a day.

In the fourth quarter, the number of missing barrels reached as high as 1.1 million barrels a day, or 43% of the estimated oversupply during that period. The IEA collates production and demand data from around the world, and its monthly reports often move prices. Other major market monitors, like the U.S. EIA and the OPEC, don’t break down their data to show the number of missing barrels. In 1998, the last time the number of missing barrels was so high, concern over the discrepancy reached the US Congress. A U.S. senator asked the Government Accountability Office, a nonpartisan agency working for Congress, to examine the IEA data. The agency found that “[statistical] limitations can introduce errors into the data, although the magnitude and direction of these errors are not clear.”

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Fascinating drama, but, really guys? Olympics? There? In a few months?

Brazil Tumbles Like ‘House Of Cards’ In Crisis

The plot to Brazil’s political crisis has become so complicated that even makers of political drama ‘House of Cards’ joke they are now following events. There is even an online quiz where one has to guess: did it happen in Brazil or in House of Cards, or both? But this is no laughing matter in Brazil. This is the country’s toughest political crisis since the early 1990s, when its first democratically-elected President in the modern era, Fernando Collor, was removed from power. On Wednesday night the crisis took a bizarre turn, as a judge revealed phone conversations between President Dilma Rousseff and her predecessor Luiz Inacio Lula da Silva and suggested they are trying to obstruct the course of an investigation into corruption. Spontaneous protests erupted in more than 15 cities across the country and riot police acted against demonstrators in Brasilia.

Both Rousseff and Lula – as he is known – are fighting for their political survival. Their political project has been shaping Brazil since 2003, when Lula defeated the opposition and established the Workers’ Party at the top of Brazilian politics. Rousseff is under fire for allegedly doctoring government accounts last year and could be suspended from her job as early as May if she loses a key vote in Congress. Lula is investigated for allegedly having received gifts from construction firms that were benefitted with inflated contracts from state oil giant Petrobras. Two weeks ago it looked like investigators were close to charging Lula for corruption, after he was detained and questioned for three hours. On Sunday, opponents of Rousseff and Lula staged one of the country’s largest demonstrations in history asking for her removal and his imprisonment.

Usually when politicians are involved in corruption allegations, they are either fired or suspended from their jobs – not invited into the government. But these are strange times in Brazilian politics. Rousseff’s reaction this week took everyone by surprise. She invited Lula to become her Chief of Staff and help lead her efforts out of the impeachment mess. On Wednesday, she justified her decision by saying he is “important and relevant for his unequivocal political experience”. She dismissed criticism that Lula was only being offered a job to escape criminal charges. As a minister, he will have prosecution privileges and only Brazil’s Supreme Court will be able to try him. She also denied that Lula would become a “de-facto” President – a “super minister” more powerful than the President herself.

“I have to laugh when you ask that,” she told journalists on Wednesday. But hours after Rousseff’s announcement to the press, a “bomb” was dropped in Brazil’s political scene. A phone conversation between Rousseff and Lula – taken earlier that day – was released to the public. Rousseff tells Lula that she is sending him a document which he can use “if necessary”. That document confirmed Lula’s nomination as a minister. One reading of that conversation suggests that Lula should use it in case prosecutors want to charge him before he is sworn in. That would corroborate the idea that Lula’s nomination is nothing but a plan to save him from prison. The phone conversation was revealed by federal judge Sergio Moro who has become a central person in the Petrobras probe and a hero to many people who are anti the Workers’ Party.. In Sunday’s mass protests, demonstrators showed hostility towards opposition politicians. The only unanimous figure amongst them was Moro.

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Not going to happen.

Merkel Dodges European Banking Union Push From Draghi (BBG)

ECB President Mario Draghi pushed European Union leaders for clarity on the future of the euro on Thursday. But Germany still chose to skirt a critical area of disagreement with its partners. During a closed-door session in Brussels, Draghi told EU leaders that the most important thing they could do would be to set out a clear path forward for the monetary union, according to two officials familiar with deliberations. When Portugal later called for a specific commitment to discuss banking union at an upcoming summit in June, German Chancellor Angela Merkel said such language wasn’t warranted, the officials said, asking not to be named because the talks were private.

Merkel, struggling to reassure her voters that she can get a grip on immigration flows, is sensitive to the risk of a domestic backlash against underwriting bank deposits in the rest of the bloc; Draghi has already faced German dissent in his battle to fan inflation across the currency union. At Thursday’s summit, Draghi said the ECB has “no alternative” to its recent rate cuts and monetary policy actions, and he encouraged them to support the central bank by reassuring savers, insurers and bankers about potential market distortions or risks to financial stability from the latest stimulus efforts. Draghi also spoke to reporters after leaders wrapped up the economic part of their deliberations and he left the meeting.

“I made clear that even though monetary policy has been really the only policy driving the recovery in the last few years, it cannot address some basic structural weaknesses of the euro-zone economy,” Draghi said. He also pledged that rates would stay low and that the ECB would use “all the appropriate instruments” as the outlook requires. [..] One particular area of German opposition has been further moves on banking union. The euro area has already adopted common banking supervision and resolution frameworks, while stopping short of creating a common deposit insurance framework. Germany has said it can’t proceed with pooling guarantees until the euro area has addressed broader questions about sovereign debt risk and financial stability. Draghi identified the euro area’s lack of joint deposit insurance as one of the main policy changes facing the EU..

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High stakes games.

Catalonia Said to Court Default in Spanish Game of Chicken (BBG)

Catalonia is deliberately flirting with default on its bank loans as the region’s separatist government tries to force the Spanish state to deliver aid payments, according to two people familiar with the situation. Officials in the regional capital Barcelona are counting on Spain to step in and supply the funds they need to meet loan repayments coming due this year, betting the central government will be forced to back down because the costs of a default would be greater for the Spanish sovereign, the people said, asking not to be identified discussing confidential matters. The region already missed payments on at least two bank loans, Regional President Carles Puigdemont said earlier this month according to El Mundo newspaper. Albert Puig, a spokesman for the Catalan government, said the region is trying to persuade Spain to release aid money due from 2014.

He said Wednesday there’s “no scenario” in which Catalonia would default. Catalan bonds maturing in February 2020 plunged the most since June 2013 on Wednesday after El Mundo reported that the region could be placed on selective default by credit rating company Standard & Poor’s. The yield on the debt rose by 21 basis points to 4.18% on Thursday after jumping by 84 basis points during the previous session. Similarly dated Spanish debt yields 0.36%. The separatist government in Catalonia, Spain’s biggest regional economy, is locked in a battle with the authorities in Madrid as it fights for independence. Puigdemont has pledged to prepare for secession by the middle of next year, though caretaker Prime Minister Mariano Rajoy says his plans are illegal.

The latest skirmish between the two administrations is over Catalonia’s plan to extend the maturity of approximately €1.6 billion of bank loans coming due this year. Such modifications require approval from the central government under the terms of the region’s 2012 bailout deal and Spain has been dragging its feet. Those loans are from Banco Santander, Banco Bilbao Vizcaya Argentaria, CaixaBank and Banco Sabadell, the two people said.

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Must be EU law ASAP. Make that global.

Italy Passes Law To Make Supermarkets Give Wasted Food To Charity (Ind.)

Italy has passed a law which will make supermarkets donate more of their waste food to charities. The country is now the second in Europe to pass such a law, after a bill was introduced in France in February which fines retailers who throw away unsold food. The bill received strong support from all parties, and was passed by the Italian parliament’s lower house on Thursday. It is expected to get approval from the Senate this week. Rather than penalising retailers who throw away food, the new law makes it easier for them to give it away, through the reform of certain tax laws which previously made it difficult to donate unsold produce. The law also allows businesses to give away food which is past its ‘sell by’ date, if it is not spoiled.

Italian agriculture minister Maruizio Martina told La Repubblica: “We are making it more convenient for companies to donate than to waste.” “We currently recover 550 million tonnes of excess food each year, but we want to arrive at one billion in 2016.” According to food producers’ organisation Coldiretti, the equivalent of 76kg of food for each person in the country is thrown away every year. With the passing of the new bill, it is hoped that some of this food will be passed on to the six million Italians who rely on donations from charities to eat. The anti-waste movement has been gathering momentum across Europe recently – French politician Arash Derambarsh, who is trying to pass EU-wide food donation legislation, has previously told The Independent: “The problem is simple – we have food going to waste and poor people who are going hungry.”

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The deal can’t be done without the EU playing fast and loose with a whole slew of international laws.

EU and Turkey Harden Positions Over Latest Refugee Plan (FT)

The EU and Turkey on Thursday night hardened their positions over the EU’s latest migration plan, leaving many disputes still to be resolved on a big-bang proposal to systematically turn back migrants reaching Greek islands. After five-hours of summit talks in Brussels, EU leaders agreed a negotiating position that further diverged from Ankara’s demands, setting the stage for a clash on Friday over key legal, practical and political elements of the package. These include Turkey’s refusal to apply full international standards on refugees, a Cypriot veto on opening parts of Ankara’s EU-membership talks, and Greece’s demands for thousands more staff to implement the plan. Differences also remain on the EU side over promises to accept Syrian migrants directly from Turkey to compensate for those turned back from Greek islands.

Angela Merkel, the German chancellor, said the final round of negotiations “will be anything but easy”. François Hollande, the French president, added: “I can’t guarantee you a happy conclusion.” Talks with Turkey on the offer will begin on Friday morning, when Ahmet Davutoglu, Turkish prime minister, will meet with Donald Tusk, the European Council president, Mark Rutte, the Dutch premier, and Jean-Claude Juncker, the European Commission president. Diplomats said one of the biggest stumbling blocks was the legal status of the plan, with Spain, Portugal and France pressing for Turkey to revamp its asylum system so migrants from all countries are able to seek international protection there. According to a draft of the EU’s position seen by the FTs, the bloc calls on Turkey to offer a “commitment that migrants returned to Turkey will be protected in accordance with the relevant international standards”.

Ankara is resisting any such formal legal changes, which EU officials fear would blow a hole in the legal basis for the deal. Ms Merkel said there were “certain legal prerequisites” needed to ensure migrants would be treated humanely in Turkey. Mariano Rajoy, Spain’s premier, said: “I defended the principle that whatever decision that is adopted must be in conformity with international law, and I made clear that without that we couldn’t support the conclusions.” Also sensitive are Ankara’s demands that Cyprus lifts a freeze on several “chapters” in its EU membership talks, a concession Nicosia is unwilling to make without Turkey recognising its government. While the issue touches on 40 years of enmity and has the potential to flare up, diplomats are discussing various compromises to work around the Cypriot block. Mr Hollande said leaders were “careful not to name the [specific] chapters”.

On the practical front, Greece also requested 4,000 extra staff — including 2,500 from other EU countries — to help it man borders and detain and handle an estimated 10,000 arrivals per week, who must be processed individually according to the terms of the deal. Ms Merkel said Germany was willing to contribute personnel to the Greek effort, saying EU member states could be able to commit specific numbers in a matter of days. “Each and every refugee has to be evaluated, each and every individual case has to be analysed,” Ms Merkel said. “From a logistical point of view, it’s going to be very important to have the necessary personnel on the islands to make this procedure possible.”

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Imagine the mess this will cause: “Each person applying for asylum will have to be interviewed as part of the process and each application examined separately. The arrivals will have the right to appeal if their asylum claim is rejected.”

Greece Has Much Work To Do If EU Reaches Refugee Deal With Turkey (Kath.)

Late last night European Union leaders were discussing the plan for Greece to return refugees to Turkey, which will require the government in Athens to conduct a huge amount of work in the coming days if the scheme is approved. European Council President Donald Tusk said he was “more cautious than optimistic” that an agreement could be reached on the plan, which is based around the EU resettling one refugee directly from Turkey for every refugee that crosses the Aegean and arrives in Greece. If approved, the deal will entail a huge amount of legal and technical work for Greek authorities in the next few days.

Firstly, the country’s asylum service will have to be overhauled immediately, starting with the recognition of Turkey as a “safe third country,” which would allow asylum seekers to be returned there from Greece. Legislation would also have to change so that asylum applications are processed within days rather than months, as is the case now. At the same time, Greece will have to remove all the refugees and migrants currently on its islands and take them to camps on the mainland. This has to happen before the agreement with Turkey for the return of anyone arriving on the islands can begin. This means some 8,000 people will have to be transferred.

Having done this, the Greek government will have to set up a system to register and process any new arrivals on the islands and examine their asylum applications. Each person applying for asylum will have to be interviewed as part of the process and each application examined separately. The arrivals will have the right to appeal if their asylum claim is rejected. This would require hundreds of public servants and other personnel to be stationed on the islands. This includes judges, employees of Greece’s asylum service, translators, security staff and officials from the EU’s border agency, Frontex. Also, there will be Turkish observers on the islands to ensure the refugees sent back have traveled from Turkey in the first place.

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“All they want is a better life, to escape war, to escape poverty. And what do they get? Greece of [Nazi] occupation. These are scenes from another century, another time.”

Idomeni, The Train Stop That Became An ‘Insult To EU Values’ (Guardian)

Not long ago few had heard of Idomeni, a train stop on the Greek-Macedonian border. Now it has become Europe’s biggest favela: an embarrassment to the values the continent holds so dear. Its tents, clinics and cabins lie on mud-soaked land. Its fields, once fertile, are toxic dumps. Its air is acrid and damp. Children dart this way and that, exhausted, hungry, unwashed. Waterlogged tents surround them – women sitting inside, men sitting in front, attempting vainly to stoke fires on rain-sodden wood. Everywhere there are lines: of bedraggled refugees queuing for food, of scowling teenage boys waiting for medics, of teenage girls holding babies, of older men and women staring into the distance in disbelief. And everywhere there are piles: of sodden clothes, soaked blankets, muddy shoes, tents, wood, rubbish – the detritus of despair but also desperation of people who never thought that this was where they would end up.

Taking in the camp’s chaotic scenes on Tuesday, the EU’s top immigration official Dimitris Avramopoulos, momentarily struggled to find the words. “These are images that offend us all,” he said, young boys breaking into a fight as they scavenged for wood behind him. “The situation is tragic, an insult to our values and civilisation.” Idomeni was never meant to happen. It is a bottleneck that abruptly occurred when Macedonia – following other eastern European and Balkan states – arbitrarily decided to seal its frontier. At its most intense, 14,000 people – mainly Syrians and Iraqis but also Afghans, Iranians, Moroccans, Algerians and Tunisians – have converged on this boggy plain, all bound by a common dream to continue their journey into central Europe.

For many the sight of Avramopoulos, wading through the slush in pristine wellies, was the first sign that hope was in the offing. Few politicians have ventured this far north. With almost every refugee in close contact with relatives abroad, hopes abound that the visit will augur well when EU leaders meet to decide their fate in Brussels on Thursday. More than 45,000 migrants and refugees are now stranded in Greece. Urging “pan-European” solutions to Europe’s biggest crisis yet, the German chancellor, Angela Merkel, declared on Wednesday that time was of the essence. “The situation in Greece should very much worry us all,” she told Berlin’s federal parliament ahead of the summit. “Because it won’t be without consequences for any of us in Europe.”

No one knows this better than those in Idomeni. Doctors are quick to say that until they got to the camp they had no idea what a public health emergency meant. Exposed to the elements, the place is being described as a timebomb. The vast majority of refugees have been here for weeks with some close to completing a month. Cases of fever, pneumonia, septicaemia, hysteria and psychotic breaks are all on the rise, according to health workers. “We have found women in tents writhing in pain as a result of [intrauterine] foetal deaths,” says Despoina Fillipidaki, who is coordinating volunteers, clinics, drug supplies and medics for the Red Cross in the tent city. “My biggest fear is that soon people will start to die. And what was their crime? All they want is a better life, to escape war, to escape poverty. And what do they get? Greece of [Nazi] occupation. These are scenes from another century, another time.”

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UNHCR confirms what I’ve written repeatedly. Compare this for instance to the standard BBC ‘disclaimer’, which is clearly disingenuous and doesn’t comply with international legal definitions:

The BBC uses the term migrant to refer to all people on the move who have yet to complete the legal process of claiming asylum. This group includes people fleeing war-torn countries such as Syria, who are likely to be granted refugee status, as well as people who are seeking jobs and better lives, who governments are likely to rule are economic migrants.

‘Refugees’ and ‘Migrants’- There Is A Distinction That Matters (UNHCR)

1. Are the terms ‘refugee’ and ‘migrant’ interchangeable? No. Although it is becoming increasingly common to see the terms ‘refugee’ and ‘migrant’ used interchangeably in media and public discussions, there is a crucial legal difference between the two. Confusing them can lead to problems for refugees and asylum-seekers, as well as misunderstandings in discussions of asylum and migration.

2. What is unique about refugees? Refugees are specifically defined and protected in international law. Refugees are people outside their country of origin because of feared persecution, conflict, violence, or other circumstances that have seriously disturbed public order, and who, as a result, require ‘international protection’. Their situation is often so perilous and intolerable, that they cross national borders to seek safety in nearby countries, and thus become internationally recognized as ‘refugees’ with access to assistance from states, UNHCR, and relevant organizations. They are so recognized precisely because it is too dangerous for them to return home, and they therefore need sanctuary elsewhere. These are people for whom denial of asylum has potentially deadly consequences.

5. Can ‘migrant’ be used as a generic term to also cover refugees? A uniform legal definition of the term ‘migrant’ does not exist at the international level. Some policymakers, international organizations, and media outlets understand and use the word ‘migrant’ as an umbrella term to cover both migrants and refugees. For instance, global statistics on international migration typically use a definition of ‘international migration’ that would include many asylum-seeker and refugee movements. In public discussion, however, this practice can easily lead to confusion and can also have serious consequences for the lives and safety of refugees. ‘Migration’ is often understood to imply a voluntary process, for example, someone who crosses a border in search of better economic opportunities.

This is not the case for refugees who cannot return home safely, and accordingly are owed specific protections under international law. Blurring the terms ‘refugees’ and ‘migrants’ takes attention away from the specific legal protections refugees require, such as protection from refoulement and from being penalized for crossing borders without authorization in order to seek safety. There is nothing illegal about seeking asylum – on the contrary, it is a universal human right. Conflating ‘refugees’ and ‘migrants’ can undermine public support for refugees and the institution of asylum at a time when more refugees need such protection than ever before.

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Feb 142016
 
 February 14, 2016  Posted by at 9:59 am Finance Tagged with: , , , , , , , ,  


Dorothea Lange Water supply in squatter camp near Calipatria CA 1937

China’s Central Bank Says No Basis for Continued Yuan Decline (BBG)
Why Kuroda’s ‘Bazooka’ May Be Out of Ammunition (WSJ)
BoJ Deputy Says Japan Needs Bolder Measures To Unlock Growth (FT)
Swedish Central Bank Move Creates a Global Shudder (NY Times)
Bond Investors Looking Out for Stimulus Hint in Draghi Testimony (BBG)
There Are Still a Few Tricks Seen Up Central Bankers’ Sleeves
Former Dallas Fed President Calls Out Central Banks (CNBC)
Nomura Drops to Pre-Abenomics Level as Japan’s Brokers Slump (BBG)
Deutsche Bank Buyback Sparks Backlash From Newest Investors (BBG)
This is How Financial Chaos Begins (WS)
Pension Funds See 20% Spike In Deficit (AP)

A Debt Rattle largely filled with central banks and various opinions and assumptions about them. Just happened that way.

China’s Central Bank Says No Basis for Continued Yuan Decline (BBG)

China’s central bank governor said there was no basis for continued depreciation of the yuan as the balance of payments is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, according to an interview published Saturday in Caixin magazine. Zhou Xiaochuan dismissed speculation that China planned to tighten capital controls and said there was no need to worry about a short-term decline in foreign-exchange reserves, adding that the country had ample holdings for payments and to defend stability. The comments come as Chinese financial markets prepare to reopen Monday after the week-long Lunar New Year holiday.

The country’s foreign-exchange reserves shrank to the smallest since 2012 in January, signaling that the central bank sold dollars as the yuan fell to a five-year low. The weakening exchange rate and declining share markets in China have fueled global turmoil and helped send world stocks to their lowest level in more than two years. The bank will not let “speculative forces dominate market sentiment,” Zhou said, adding that a flexible exchange rate should help efforts to combat speculation by effectively using “our ammunition while minimizing costs.”Policy makers seeking to support the yuan amid slower growth and increasing outflows have been using up reserves. The draw-down has continued since the devaluation of the currency in August and holdings fell by $99.5 billion in January to $3.23 trillion, according to the central bank on Feb. 7.

The stockpile slumped by more than half a trillion dollars in 2015. China has no incentive to depreciate the currency to boost net exports and there’s no direct link between the nation’s GDP and its exchange rate, Zhou said. Capital outflows need not be capital flight and tighter controls would be hard to implement because of the size of global trade, the movement of people and the number of Chinese living abroad, he added. The country will not peg the yuan to a basket of currencies but rather seek to rely more on a basket for reference and try to manage daily volatility versus the dollar, Zhou said. The bank will also use a wider range of macro-economic data to determine the exchange rate, he said.

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By his own admission, no clue: “..what we have to do is to devise new tools, rather than give up the goal..”

Why Kuroda’s ‘Bazooka’ May Be Out of Ammunition (WSJ)

Bank of Japan Gov. Haruhiko Kuroda once awed the markets. Now he looks like just another central banker running out of options. Mr. Kuroda took the helm of the BOJ in March 2013, vowing to do whatever it takes to vault Japan out of more than a decade of deflation. He fired one “monetary bazooka” and then another, seeming to bend markets to his will both times. Japanese stocks rose, and the yen sank, key developments for “Abenomics,” Prime Minister Shinzo Abe’s growth program. But the introduction of negative interest rates two weeks ago failed to impress—except in the minds of some as confirmation that what the BOJ had been doing for three years wasn’t working. Japan’s economy is sputtering and Mr. Kuroda’s primary target—2% inflation—is as far away as ever, heightening skepticism about the limits of monetary policy and the fate of Abenomics.

It is an ominous development for Mr. Kuroda. He sees Japan’s long bout of deflation as a psychological disorder as much as an economic disease. His job as BOJ chief has been part central banker, part national psychologist. It has been all about creating confidence. From the start, many said he was attempting the impossible. Deflation is notoriously difficult to escape, and had taken deep root in Japan after years of policy missteps. Last summer he invoked a fairy tale to describe his task. “I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘The moment you doubt whether you can fly, you cease forever to be able to do it,’” Mr. Kuroda said in June last year. “Yes, what we need is a positive attitude and conviction.”

Answering questions in parliament Friday, Mr. Kuroda dismissed claims that the introduction of negative interest rates were to blame for the recent stock market selloff. He pointed to global market volatility, and said the negative rates have had their intended effects, driving down yields on short- and long-term government bonds. “I believe those effects will steadily spread through the economy and prices going forward,” he said. Mr. Kuroda has also repeatedly rejected the notion that the central bank is running out of ammunition, insisting that there is “no limit” to its policy options. “If we judge that existing measures in the tool kit are not enough to achieve the goal, what we have to do is to devise new tools, rather than give up the goal,” he said.

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Peter Pan rules.

BoJ Deputy Says Japan Needs Bolder Measures To Unlock Growth (FT)

The deputy governor of the Bank of Japan has called on the country’s government to pull its weight, as the central bank strains to haul the world’s third-largest economy decisively out of deflation. Last month the BoJ embarked on its latest round of easing, saying it would start charging for excess reserves deposited at the central bank. At the time, it said it wanted to provide a shot of stimulus at a critical moment, just ahead of the annual Spring round of wage negotiations between companies and workers’ groups. In a speech in New York on Friday, deputy governor Hiroshi Nakaso said that the government now needed to do more to boost Japan’s growth potential. He referred to a joint statement on overcoming deflation, signed by the BoJ and the government in January 2013, a few months before the bank embarked on its first round of easing under the current governor, Haruhiko Kuroda.

In it, the central bank pledged to stimulate demand through ultra-aggressive monetary policy while the government promised to pursue ‘all possible’ supply-side reforms. Now that the Bank of Japan has taken monetary easing one step further … I think that the original third arrow of Abenomics, the growth strategy, must also fly faster, he said. The unusually candid speech comes as the success of the mix of the policies pursued by prime minister, Shinzo Abe, remains in the balance. After three separate bursts of monetary stimulus from the BoJ, inflation has gained some momentum while corporate profits have been boosted by a sharp drop in the value of the yen. However, Japan’s potential growth rate remains so low — around or slightly below 0.5%, according to the BoJ’s estimate – that any setback has the potential to tip the country into recession.

Economists at Goldman Sachs expect that the first reading of GDP figures for the fourth quarter, due on Monday, will show an annualised contraction of 1.2% from the third quarter, hit by a slump in consumer spending due to a mild weather and smaller winter bonuses. The BoJ now fears that many cash-hoarding companies are set to resist calls for higher wages, as they assume that inflation will be kept in check by a combination of weak demand, a lower oil price and a stronger currency. The national trades union group, Rengo, has already signalled a less aggressive stance in this year’s negotiations, saying it is aiming at an across-the-board increase of “around 2%” — less than the 2015 demand for “at least” 2%. That could threaten progress toward the BoJ’s sole policy target: an inflation rate of 2%. In December Japan’s consumer price index stood at 0.1%, excluding fresh food, and 0.8% excluding energy.

“The sluggish increase in nominal wages is thought to reflect low productivity growth and the strong deflationary mindset,” said Mr Nakaso. “My answer to what kind of policies are needed, is that both monetary and fiscal policies and structural reforms are indispensable.” Mr Nakaso is likely to make similar remarks during a speech to business leaders next month in Okinawa, according to people familiar with his thinking, imploring the government to take bolder measures to unlock growth. Takuji Okubo, managing director at Japan Macro Advisors, a research boutique, said that the government’s ‘third arrow’ record has been poor, citing a lack of true reform of the labour market, the service sector or the public pension system. He added that the sharp sell-off in the Japanese stock market since the beginning of the year, coupled with a renewed appreciation of the yen, seems strong enough to put an end to the Abenomics boom. “The expiry date has now come to pass,” he said.

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“What central bankers are doing now feels like a Jedi trick..”

Swedish Central Bank Move Creates a Global Shudder (NY Times)

What if the bazooka is shooting blanks? Since the financial crisis, it has been gospel for many investors that some combination of actions by central banks — bond buying, bold promises or flirtations with negative interest rates — would be enough to keep the global economy out of recession. But investors’ distress over the latest volley by a major central bank, the surprise decision on Thursday by the Swedish central bank to lower its short-term rate to minus 0.50% from minus 0.35%, has heightened fears that brazen actions by central bankers are now making things worse, not better. Global stock markets sank, the price of oil plunged to a 13-year low and investors fled to safe haven instruments like gold and United States Treasury bills.

Markets generally embrace conviction and run away from indecision — which is what many see in the policy making of some of the large central banks these days. The Swedish central bank, the Riksbank, for example, has been criticized in the past for prematurely raising rates, and Thursday’s rate cut was opposed by two bank deputies. At the ECB Jens Weidmann, the head of the powerful German Bundesbank, remains at odds with the president, Mario Draghi, in terms of how loose the central bank’s policies should be. And in the United States, the Federal Reserve is seen by some market participants to be wavering in its commitment to higher rates in light of the market turmoil.

[..] “What central bankers are doing now feels like a Jedi trick,” said Albert Edwards, global strategist for Société Générale in London. “Everyone is in a currency war and inflation expectations are collapsing.” In other words, drastic steps by central bankers in Europe, Japan and China to keep their currencies weak and exports strong may not only be counterproductive in terms of stimulating global growth — someone has to buy all those Chinese and Japanese goods — but has other consequences as well. Negative interest rates, for example, are not only bad for bank profits and lending prospects, they can also make savers more fearful, hampering the central aim, which is to get people to spend, not hoard. All of which can lead to a global recession.

A perma-bear like Mr. Edwards is always in possession of a multitude of negative economic indicators to prove his thesis, which, in his case, is a fall of 75% in the S.&P. 500 from its peak last summer. Some are obvious and have been highlighted by most economists, like the increasing interest rates on corporate bonds in the United States — both investment grade and junk. But he also pointed to a recent release from the Fed that showed that loan officers at United States banks said that they had been tightening their loan standards for two consecutive quarters. “You tend to see that in a recession,” Mr. Edwards said. His prediction of a so-called deflationary ice age is still considered a fringe view of sorts, although he did say that a record 950 people (up from 700 the year before) attended his annual conference in London last month. Still, the notion that the global economy has not responded as it should to years of shock policies from central banks is more or less mainstream economic thinking right now.

[..] The well-known bond investor William H. Gross of Janus Capital took up this theme in his latest investment essay, arguing that there was no evidence to show that the financial wealth (and increased levels of debt) created by a long period of extra-low interest rates would spur growth in the real economy. As proof, he cited Japan’s persistent struggles to grow despite near-zero interest rates; subpar growth in the United States; and emerging market problems in China, Brazil and Venezuela. “There is a lot of risk in the global financial marketplace,” Mr. Gross said in an interview on Thursday. “It is incumbent on me to focus on safe assets now.”

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Debt is king, and Draghi its oracle.

Bond Investors Looking Out for Stimulus Hint in Draghi Testimony (BBG)

Investors will look next week for a whiff of confirmation from Mario Draghi that they weren’t wrong to push bond yields to record lows in anticipation of fresh stimulus from the ECB. The ECB president’s speech to European lawmakers in Brussels on Monday will come after a turbulent five days in which global markets exposed a schism in the euro region’s debt markets. German 10-year bund yields approached their record low from April while Portugal’s jumped by the most since May 2012, before Draghi made his famous “whatever it takes” speech in July that year. Investor demand for havens at these lower yields faces a challenge on Feb. 17 when Germany auctions €5 billion ($5.6 billion) of 10-year bonds.

That’s followed the next day by France selling up to €8.5 billion of conventional and inflation-linked bonds. The offerings come while the prospects of slowing growth and depressed inflation are prompting investors to pile into the region’s safer fixed-income assets, driving yields down toward levels that triggered a selloff last April and May. “Investors will keep a close eye for any hints for what type of policy easing will be forthcoming,” said Nick Stamenkovic at broker RIA Capital Markets. “People are plumping for safety, core government bonds and demanding a higher risk premium on peripherals in particular, and also some semi-core bonds. The upcoming auctions outside of Germany will be a good test of sentiment.”

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“Pessimism is unwarranted.” Darn, and I though it was time to panic. Finally. They can’t even agree on that.

There Are Still a Few Tricks Seen Up Central Bankers’ Sleeves

If one line of reasoning for the plunge in bank stocks is that monetary policy has lost its punch, investors would do well to recall a law of modern investing: “Don’t fight the Fed.” As the week draws to a close, some Wall Street economists and strategists say monetary authorities have plenty more tricks up their sleeve – even after more than 635 interest-rate cuts since the financial crisis by Bank of America’s reckoning and with central banks now sitting on more than $23 trillion of assets. “Time and time again policy makers have shown themselves to be bolder and more inventive than asset markets give them credit for,” Stephen Englander, Citigroup’s New York-based global head of Group-of-10 currency strategy, said in a report to clients late on Thursday. “Pessimism is unwarranted.”

His proposal is that officials focus their policy more on boosting demand rather than just increasing liquidity in the hope that consumers and companies will find a need for it. While he thinks targeted lending could help achieve that, he advocates what he calls “cold fusion” in which politicians would cut taxes and boost spending with central banks covering the resulting rise in borrowing by purchasing even more bonds. “The next generation of policy tools is likely to be designed to act more directly on final demand, using persistently below target inflation as a lever to justify policies that will be anathema otherwise,” Englander said. In a similar vein, Hans Redeker at Morgan Stanley in London, is declaring it’s time for central banks to begin using quantitative easing to buy private assets having previously focused on government debt.

“I would actually look into the next step of the monetary toolbox,” Redeker said in a Bloomberg Television interview. “We need to fight demand deficiency.” Critics say that’s the source of the problem. There’s little more bond-buying and rate cutting can do to stoke the real economy. And markets, they say, now recognize that. Part of this week’s pain in markets has stemmed from the concern that the negative interest rates increasingly embraced by the likes of the Bank of Japan and European Central Bank do more harm than good by hitting bank profits. That hasn’t stopped JPMorgan economists led by Bruce Kasman suggesting central banks could cut much deeper without any major side effects so long as they limit the reserves they are targeting. Citigroup said yesterday that Israel, the Czech Republic, Norway and perhaps Canada could also join the subzero club in the next couple of years.

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“Look, these are very smart people..”

Former Dallas Fed President Calls Out Central Banks (CNBC)

Are central banks’ aggressive monetary policies to blame for the today’s economic woes? Former Dallas Federal Reserve President Robert McTeer says yes. Speaking to CNBC’s “Fast Money” this week, McTeer explained that while the Fedis comprised of smart and carefully minded individuals, they dropped the ball when it comes to their current approach. “[The Fed] waited too long to begin the tightening process,” noted the former FOMC member and 36-year veteran of the Federal Reserve system. The central banker’s critique echoed that of other economists, whom have argued that the trillions of cheap dollars flooding the system have exacerbated the current downturn, and made the market addicted to the liquidity.

Known for his prolific writing and plain-speaking style while at the Fed, McTeer has been a critic of the Fed’s ultra-loose monetary policy, which he previously argued stayed too low for too long. However, McTeer admitted that bad luck and unfortunate timing has compounded the current undesirable circumstances. He told CNBC that “as soon as they took the first step [to tighten], international developments overwhelmed the situation.” At that time, China’s slowdown became more pronounced, upsetting markets. McTeer further believes that the Fed’s delay enabled other central banks—from Japan to the European Central Bank—to enact negative interest rates, a policy move with which he disagreed. Now, with international markets in crisis, McTeer says Fed chair Janet Yellen needs to take a more proactive approach in addressing global concerns.

The former central banker advised that “she should probably show more concern [related] to recent market turmoil” when speaking in the future. On Friday, international markets saw a sell-off in Asia where the Nikkei dropped 4.8% to 14,952, its lowest close since October, 2014. Additionally, the yen ended the week down 11%, unwinding some of the massive flight to safety buying that has recently boosted Japan’s currency. The Dow Jones Industrial Average, S&P 500 Index and Nasdaq all posted big gains, and snapped a five day losing streak. At the same time, the market’s latest mantra has become negative interest rates, which have been introduced in Japan and Europe. Earlier this week, Yellen refused to rule out the policy move for the world’s largest economy, but acknowledged the issue needed more study.

Negative rates, however, is an idea McTeer does not endorse. The central bank “is not going to do it, but furthermore they can’t do it,” he noted, speaking of the Fed’s next potential move. In McTeer’s interpretation, negative rates are not an options because the Fed has adopted a new mechanical procedure for establishing the Fed funds rate, which is the interest rate that banks use to calculate overnight loans to other institutions. The rate currently calls for a positivity on bank deposits. McTeer believes that if the Fed tries to go negative, it would take years to re-work the system.

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Buybacks then! Solves everything.

Nomura Drops to Pre-Abenomics Level as Japan’s Brokers Slump (BBG)

It’s as if Abenomics never happened for Japan’s biggest brokerages. Nomura and Daiwa Securities fell for an eighth straight day in Tokyo as the deepening stock-market rout continues to pummel investment banks around the world. Nomura is now trading below its price when Shinzo Abe became prime minister in December 2012, ushering in an economic-stimulus policy that sparked a stock-market rally and a profit rebound at Japan’s largest securities firm. The selloff may be overdone because brokerages remain stronger than they were before the Abe administration, according to SBI Securities analyst Nobuyuki Fujimoto. “Their fundamentals haven’t deteriorated that much,” Fujimoto said by phone. “The tide will turn as overseas investors in particular decide whether their profitability is really worse than it was before Abenomics.”

Shares of Tokyo-based Nomura closed 9.2% lower Friday, extending their decline to 33% since the company posted worse-than-estimated earnings on Feb. 2. At 446.6 yen, the price is the lowest since Dec. 21, 2012. Daiwa dropped 8.2% to 591.1 yen, the weakest since the month before Bank of Japan Governor Haruhiko Kuroda unveiled his first round of monetary easing in April 2013. An index of securities firms was the third-worst performer on the benchmark Topix, which slumped 5.4%. Investors continued dumping Nomura shares even after Chief Executive Officer Koji Nagai said this week that the company is considering buying back stock while it’s cheap. “The brokerage must also be advising Japanese firms to consider share buybacks, if the CEO’s remarks are any guide,” said Fujimoto. “I wouldn’t be surprised to see companies start announcing such plans soon, which will be beneficial to brokerages.”

Nomura has announced five share buybacks since May 2013, including two last year. The company is now trading at 0.57 times the book value of its assets, the cheapest since November 2012, according to data compiled by Bloomberg. Daiwa has a price-to-book ratio of 0.80 “We’re considering returning profit appropriately” to shareholders, Nagai said in an interview on Tuesday. “There’s no doubt that it’s better for us to do it when they’re cheap,” he said, declining to comment on the timing and size of any buyback.

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Oh wait, not everything…

Deutsche Bank Buyback Sparks Backlash From Newest Investors (BBG)

Investors who scooped up bonds sold by Deutsche Bank last month are pushing for better terms in the bank’s $5.4 billion debt buyback plan, saying they were misled because the German lender failed to disclose its true financial position before the sale, according to people with knowledge of the matter. Some of the bondholders who participated in the $1.75 billion, two-part offering say the bank, which announced a fourth-quarter earnings loss less than two weeks after the sale, should’ve made that disclosure before selling the bonds, the people said, asking not to be identified as the discussions are private. Some investors are so upset that they may raise the issue with regulators, the people said.

The money managers are planning to hold discussions next week to explore their options on how best to challenge the bank, the people said. In addition to raising concern about disclosure, the bondholders are pushing for greater priority and better terms in the bank’s buyback offer announced Friday. Deutsche Bank’s buyback comes as the lender attempts to reassure investors who dumped European bank bonds and shares this week amid concerns over declining earnings and slowing global growth. The lender’s debt in a Bloomberg investment-grade bond index have dropped 2.7% in the past month compared with a 0.4% decline for all bank debt. The $750 million of 4.1% notes sold in January slumped 5.7%.

The firms that bought the biggest piece of the January offering at 100 cents on the dollar are now getting an offer to sell them back to the bank at as much as 97.3 cents, according to calculations by Bloomberg Intelligence analyst Arnold Kakuda. The securities traded at 95.6 cents on Thursday. Deutsche Bank, which unveiled the sale of the bonds on Jan. 8, said on Jan. 21 that it would post a €2.1 billion loss for the fourth quarter after setting aside more money for legal matters and taking a restructuring charge. Moody’s Investors Service cut its long-term debt rating on the bank to Baa1 from A3, citing structural issues that contributed to “weak profitability,” and the expense of maintaining a global capital-market footprint, the ratings firm said in a Jan. 25 statement.

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Junk bonds will be back.

This is How Financial Chaos Begins (WS)

There are over $1.8 trillion of US junk bonds outstanding. It’s the lifeblood of over-indebted corporate America. When yields began to soar over a year ago, and liquidity began to dry up at the bottom of the scale, it was “contained.” Yet contagion has spread from energy, metals, and mining to other industries and up the scale. According to UBS, about $1 trillion of these junk bonds are now “stressed” or “distressed.” And the entire corporate bond market, which is far larger than the stock market, is getting antsy. The average yield of CCC or lower-rated junk bonds hit the 20% mark a week ago. The last time yields had jumped to that level was on September 20, 2008, in the panic after the Lehman bankruptcy. Today, that average yield is nearly 22%! Today even the average yield spread between those bonds and US Treasuries has breached the 20% mark. Last time this happened was on October 6, 2008, during the post-Lehman panic:

At this cost of capital, companies can no longer borrow. Since they’re cash-flow negative, they’ll run out of liquidity sooner or later. When that happens, defaults jump, which blows out spreads even further, which is what happened during the Financial Crisis. The market seizes. Financial chaos ensues. It didn’t help that Standard & Poor’s just went on a “down-grade binge,” as S&P Capital IQ LCD called it, hammering 25 energy companies deeper into junk, 11 of them into the “substantial-risk” category of CCC+ or below. Back in the summer of 2014, during the peak of the wild credit bubble beautifully conjured up by the Fed, companies in this category had no problems issuing new debt in order to service existing debt, fill cash-flow holes, blow it on special dividends to their private-equity owners, and what not. The average yield of CCC or lower rated bonds at the time was around 8%.

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Beware: “.. which would take their pension fund contribution rates from an average of about 18% of payroll to nearly 30%..”

Pension Funds See 20% Spike In Deficit (AP)

Oregon Treasurer and Portland mayoral candidate Ted Wheeler issued a statement last week noting that the state pension fund’s investment returns were 2.1% in 2015. That beat the Standard & Poor’s 500 index and topped the performance of 88% of comparable institutional investment funds. What Wheeler’s statement didn’t mention was that investment returns for the year still fell 5.6 percentage points below the system’s 7.75% assumed rate of return for 2015. That’s terrible news for public employers and taxpayers. It means the pension system’s unfunded liability just increased by another 20% — growing from $18 billion at the end of 2014 to between $21 and $22 billion a year later. That will put renewed upward pressure on payments the system’s 925 public-sector employers are required to make.

Public employers had already been warned to expect maximum increases over the next six years, which would take their pension fund contribution rates from an average of about 18% of payroll to nearly 30%, redirecting billions of dollars out of public coffers and into the retirement system. In reality, those “maximum” increases could be a lot bigger. Milliman Inc., the actuary for the Public Employees Retirement System, told board members at their regular meeting Feb. 5 that the pension fund now has 71 to 72 cents in assets for every $1 in liabilities. That’s an average number across the entire system. Some individual employers’ accounts, including the system’s school district rate pool, are flirting with the 70% threshold that triggers larger maximum rate increases.

Here’s how it works: To prevent rate spikes, PERS limits the biennial change in employers’ payments to 20% of their existing rate. For example, if an employer is required to make contributions equal to 20% of payroll, the rate increase is “collared” to 20% of that number, or a 4 percentage-point increase. That 20% increase is what employers have been warned to expect every other year for the next six years. But when an employer’s funded status falls below 70%, that collar begins to widen on a sliding scale — up to a maximum of 40%.

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Feb 132016
 
 February 13, 2016  Posted by at 10:09 am Finance Tagged with: , , , , , , , , ,  


DPC New Orleans milk cart1903

Abenomics Is In Poor Health After Nikkei Slide, And It May Be Terminal (G.)
Yen’s Best Two-Week Run Since 1998 Just the Start (BBG)
The World’s Hottest Trade Has Suddenly Turned Ice-Cold (CNBC)
Credit Default Swaps Are Back As Investors Look For Panic Button (BBG)
‘Austrians Need Constitutional Right to Pay in Cash’ (BBG)
The Shipping Industry Is Suffering From China’s Trade Slowdown (BBG)
China Central Bank: Speculators Should Not Dominate Sentiment (Reuters)
America’s Big Banks Are Fleeing The Mortgage Market (MW)
Large Increase in Debts Held by Americans Over Age 50 (WSJ)
The Eurozone Crisis Is Back On The Boil (Guardian)
Schäuble Says Portugal Debt Woes Trump ‘Strong’ Deutsche Bank (BBG)
European Banks Are In The Eye Of A New Financial Storm (Economist)
150,000 Penguins Die After Giant Iceberg Renders Colony Landlocked (Guardian)
Four Billion People Face Severe Water Scarcity (Guardian)
Merkel Turns to ‘Coalition of Willing’ to Tackle Refugee Crisis (BBG)
EU Is Poised To Restrict Passport-Free Travel (AP)
80,000 Refugees Arrive In Europe In First Six Weeks Of 2016 (UNHCR)

It was terminal when it began.

Abenomics Is In Poor Health After Nikkei Slide, And It May Be Terminal (G.)

Not long ago, Shinzo Abe was being heralded for the early success of his grand design to bring Japan out of a deflationary spiral that had haunted the world’s third-biggest economy for two decades. Soon after Abe became prime minister in December 2012, the first two of the three tenets of his ‘Abenomics’ programme – monetary easing and fiscal stimulus – were having the desired effect. In the first year of the programme, the Nikkei index jumped nearly 60%, and the strong yen, the scourge of the country’s exporters, finally ceded ground to the US dollar. And in April 2013 came the appointment of Haruhiko Kuroda, a Bank of Japan governor who shared Abe’s zeal for deflation busting through ever looser monetary policy.

But by Friday, at the end of a dismal week for the Nikkei share index, market volatility caused by renewed fears over the health of the global economy has left Abe’s prescription for economic recovery in jeopardy. While, as some suggest, it is too early to read the last rites for Abenomics, few would disagree that its symptoms are in danger of becoming terminal. There is damning evidence for that claim; enough, in fact, for Abe to reportedly summon key economic advisers on Friday to discuss a way out of the impasse. Japanese shares registered their biggest weekly drop for more than seven years after shedding 4.8% for the Nikkei s lowest close since October 2014. That took the index below the 15,000 level investors regard as a psychological watershed, and erased all the gains made since the Bank of Japan made the shock decision in October 2014 to inject 80tn yen into the economy.

To compound the problem, another pillar of Abenomics – a weak yen – is also crumbling, with the Japanese currency rising to its strongest level for more than a year on Friday. The intention was for a weak yen to push up corporate earnings and help generate inflation by raising import prices; instead, companies are now cutting earnings forecasts as speculation mounts that Japan will again intervene to rein in the yen’s surge. In recent weeks, slumping oil costs and soft consumer spending – the driving force behind 60% of Japan’s economic activity – have brought inflation to a halt. Official data released last month showed that Japan’s inflation rate came in at 0.5% in 2015, way below the Bank of Japan’s 2% target, as the government struggled to convince cautious firms to usher in big wage rises to stir spending and drive up prices.

In response, the Bank of Japan extended the deadline for achieving its 2% inflation target to the first half of the fiscal year 2017, from its previous estimate of the second half of fiscal 2016. In fairness, Abe is partly the victim of factors beyond his control, namely China’s slowdown, weak overseas demand and plunging oil prices. The problem for Abe and Kuroda is that they are quickly running out of options: witness how the market boost from last week’s surprise decision to adopt negative interest rates ended after a couple of days with barely a whimper. By the time Japan hosts G7 leaders this summer, Abe could be forced to concede defeat in his principal aim of dragging Japan out of deflation and boosting growth.

But higher share prices and a weaker yen were only part of the scheme. He has barely started to address the structural reforms comprising the “third arrow” of Abenomics: a shrinking and ageing workforce and the urgent need to boost the role of women in the economy. Next year, he is expected to introduce a highly controversial increase in the consumption tax – a move that will help Japan tackle its public debt and pay for rising health and social security costs, but which could also dampen consumer spending, the driving force behind 60% of the economy. He may be inclined to disagree after a month of upheaval that also saw the resignation of his economics minister, but Abe’s troubles may be only just beginning.

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When you lose the currency war.

Yen’s Best Two-Week Run Since 1998 Just the Start (BBG)

When the going gets tough, foreign-exchange traders turn to the yen. Japan’s currency may extend its biggest two-week rally since 1998 as investors continue to seek out refuge assets amid market turmoil, according Citigroup Inc. State Street Global Advisors Inc., which oversees about $2.4 trillion, says it’s buying yen and selling dollars as the tumult gripping financial markets bolsters the Japanese currency’s appeal. “We’re not counting on the market mood shifting any time soon,” said Steven Englander at Citigroup. Citigroup, world’s biggest foreign-exchange trader according to Euromoney magazine, expects haven currencies including the yen, euro and Swiss franc to appreciate in the near term, even though it said investors are being overly pessimistic about the prospects for economic growth in the U.S. and monetary stimulus elsewhere.

The yen has defied predictions to weaken this year while its biggest counterpart, the dollar, has upended forecasts for gains. Currency traders are questioning the idea that the U.S. economy is strong enough for the Federal Reserve to raise interest rates while central bankers in Tokyo and Frankfurt consider adding to stimulus. Japan’s currency rose 3.2% this week to 113.25 per dollar, adding to last week’s 3.7% gain. Its strength contrasts with a median forecast for the currency to drop to 123 against the dollar by the end of the year. Global equities fell into a bear market this week, and commodities declined, amid growing signs that central-bank policy tools were losing their stimulative effects. Fed Chair Janet Yellen signaled financial-market volatility may delay rate increases as the central bank assesses the impact of recent turmoil on domestic growth.

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“In 2009, the ETF enjoyed average daily volume of just 10,000 to 20,000 shares. By 2012, about 200,000 shares were being traded each day. The DXJ rallied tremendously in the next half a year, and by mid-2013 was seeing about 7 million to 8 million shares trade daily..”

The World’s Hottest Trade Has Suddenly Turned Ice-Cold (CNBC)

An international trade that once looked like a no-brainer has turned into a major headache. The WisdomTree Japan Hedged Equity Fund (DXJ), which combines a long position on Japanese stocks with a short position on the Japanese yen, sounds like a niche product. But as that trade played out beautifully over the past few years, with Japanese stocks soaring as the yen tanked, the ETF has become downright mainstream. In 2009, the ETF enjoyed average daily volume of just 10,000 to 20,000 shares. By 2012, about 200,000 shares were being traded each day. The DXJ rallied tremendously in the next half a year, and by mid-2013 was seeing about 7 million to 8 million shares trade daily, a pace it has maintained up to the present.

The product plays into a popular macro thesis: Expansive policies from the Bank of Japan should help Japanese stocks and hurt the yen. This trend indeed played out powerfully for a time, leading the DXJ to nearly double from November 2012 to June 2015. But the good times didn’t last. In the eight months after hitting that June peak, the ETF lost nearly all of its gain, falling back to its lowest level in more than three years. This as both legs of the trade failed, with Japanese stocks sliding and the yen strengthening amid a global sell-off in risk assets. What may make this especially frustrating is that Japanese monetary authorities haven’t exactly given up on their plan to send the yen lower in order to foster long-dormant inflation and to boost exports.

To the contrary, the BOJ has introduced a negative interest rate policy — which utterly failed in halting the yen’s rise. In fact, the currency is enjoying its best week in years.

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Omen.

Credit Default Swaps Are Back As Investors Look For Panic Button (BBG)

As markets plunge globally, investors are seeking refuge in an all-but-forgotten place. Trading volumes in the credit-default swaps market — where banks and fund managers go to hedge against losses on corporate and government debt — have surged. Transactions tied to individual entities doubled in the four weeks ended Feb. 5 to a daily average of $12 billion, according to a JPMorgan analysis of trade repository data. The volume of contracts on benchmark indexes in the market increased two-fold during that period to an average of $87 billion a day. The growth could represent a shift. The credit derivatives market has contracted for almost a decade, after loose monetary policies triggered a big rally in assets including corporate bonds, which made investors less eager to protect against the worst.

Regulators have also urged banks to curb their risk taking, reducing the appetite for at least some dealers to trade the instruments. Now, stock markets are selling off and junk bond prices are plunging, increasing investor demand for protection. “The surge we’ve seen in trading is likely to stay with us for the foreseeable future,” said Geraud Charpin at BlueBay Asset Management, which has traded more credit-default swaps on individual credits in the past three months. “The credit cycle has turned, so there’s more appetite to go short and buy protection.” Risk measures fell on Friday after soaring this week to the highest levels since at least 2012 in the U.S., and 2013 in Europe. The cost of insuring Deutsche Bank’s subordinated debt dropped from a record after the German lender said it planned to buy back about $5.4 billion of bonds to allay investor concerns about its finances. The bank’s shares have lost about a third of their value this year.

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The EU just gets crazier by the day. But currency in circulation is way up.

‘Austrians Need Constitutional Right to Pay in Cash’ (BBG)

Austrians should have the constitutional right to use cash to protect their privacy, Deputy Economy Minister Harald Mahrer said, as the EU considers curbing the use of banknotes and coins. “We don’t want someone to be able to track digitally what we buy, eat and drink, what books we read and what movies we watch,” Mahrer said on Austrian public radio station Oe1. “We will fight everywhere against rules” including caps on cash purchases, he said. EU finance ministers vowed at a meeting in Brussels on Friday to crack down on “illicit cash movements.” They urged the European Commission to “explore the need for appropriate restrictions on cash payments exceeding certain thresholds and to engage with the ECB to consider appropriate measures regarding high denomination notes, in particular the €500 note.” Ministers told the commission to report on its findings by May 1.

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“..orders for new vessels dropped 40% in 2015 [..] The demolition rate for unwanted vessels jumped 15%.”

The Shipping Industry Is Suffering From China’s Trade Slowdown (BBG)

When business slows and owners of ships and offshore oil rigs need a place to store their unneeded vessels, Saravanan Krishna suddenly becomes one of the industry’s most popular executives. Krishna is the operation director of International Shipcare, a Malaysian company that mothballs ships and rigs, and these days he’s busy taking calls from beleaguered operators with excess capacity. There are 102 vessels laid up at the company’s berths off the Malaysian island of Labuan, more than double the number a year ago. More are on the way. “There’s a huge demand,” he says. “People are calling us not to lay up one ship but 15 or 20.” Shipbuilders, container lines, and port operators feasted on China’s rise and the global resources boom.

Now they’re among the biggest victims of the country’s slowdown and the worldwide decline in demand for oil rigs and other gear amid the oil price plunge. China’s exports fell 1.8% in 2015, while its imports tumbled 13.2%. The Baltic Dry Index, which measures the cost of shipping coal, iron ore, grain, and other non-oil commodities, has fallen 76% since August and is now at a record low. Shipping rates for Asia-originated routes have dropped, too, and traffic at some of the region’s major ports is falling. In Singapore, the world’s second-largest port, container traffic fell 8.7% in 2015, the first decline in six years. Volumes at the port of Hong Kong, the fourth-busiest, slid 9.5% last year. Beyond Asia, the giant port of Rotterdam in the Netherlands recorded a dip in containerized traffic for the year. Globally, orders for new vessels dropped 40% in 2015, to $69 billion, according to Clarksons Research. The demolition rate for unwanted vessels jumped 15%.

Just a few years ago, as the global economy improved and oil prices rose, many companies ordered more fuel-efficient ships. There were more than 1,200 orders for bulk carriers that transport iron ore, coal, and grain in 2013, compared with just 250 last year, according to Clarksons. Many of the ships ordered are now in operation, says Tim Huxley, chief executive officer of Wah Kwong Maritime Transport Holdings, a Hong Kong-based owner of bulk carriers and tankers. “You have a massive oversupply,” he says. The damage is especially severe in China, the world’s leading producer of ships. New orders for Chinese shipbuilders fell by nearly half last year, according to the Ministry of Industry and Information Technology. In December, Zhoushan Wuzhou Ship Repairing & Building became the first state-owned shipbuilder to go bankrupt in a decade.

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Beijing wants monopoly on sentiment.

China Central Bank: Speculators Should Not Dominate Sentiment (Reuters)

Speculators should not be allowed to dominate market sentiment regarding China’s foreign exchange reserves and it was quite normal for reserves to fall as well as rise, central bank governor Zhou Xiaochuan was quoted as saying on Saturday. China’s foreign reserves fell for a third straight month in January, as the central bank dumped dollars to defend the yuan and prevent an increase in capital outflows. In an interview carried in the Chinese financial magazine Caixin, Zhou said yuan exchange reform would help the market be more flexible in dealing with speculative forces. There was a need to distinguish capital outflows from capital flight, and tight capital controls would not be effective for China, he said. China has not fully liberalized its capital account.

Zhou added that there was no basis for the yuan to keep depreciating, and China would keep the yuan basically stable versus a basket of currencies while allowing greater volatility against the U.S. dollar. The government also needed to prevent systemic risks in the economy, and prevent “cross infection” between the stock, debt and currency markets, he said. The comments come after China reported economic growth of 6.9% for 2015, its weakest in 25 years, while depreciation pressure on the yuan adds to the case for the central bank to take more economic stimulus measures over the near-term. A slew of economic indicators has sent mixed signals to markets at the start of 2016 over the health of China’s economy. Activity in the services sector expanded at its fastest pace in six months in January, a private survey showed on Feb. 3, while manufacturing activity fell to the lowest since August 2012.

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“..the four largest commercial banks will “downsize or exit entirely from the business of originating and servicing residential mortgages.”

America’s Big Banks Are Fleeing The Mortgage Market (MW)

When it comes to residential mortgages, big banks are waving the white flag. Banks originated 74% of all mortgages in 2007, but their share fell to 52% in 2014, the most recent data available from the Mortgage Bankers Association. And it could go even lower. But even at these levels, the big bank backtrack is reshaping a lending landscape that’s already undergone seismic shifts since the housing bubble burst. While there’s widespread agreement that banks should have been reined in — and perhaps punished — after playing a major role in the housing bubble that helped tank the economy, the past few years have been tough for banks’ mortgage businesses. They now face a regulatory environment so strict that many are afraid to lend, even to customers with the most pristine credit.

They’re still paying up for misdeeds done during the bubble. There’s essentially no private bond market to whom to sell mortgages. And fighting those battles on behalf of their least-profitable divisions means residential lending just isn’t worth it for many banks. “We can’t make money in the business,” BankUnited CEO John Kanas said when he announced a mortgage retreat on a January earnings call. “We realized that this was the lowest-margin, most volatile business we had and we decided that we should exit.” Of the top 10 originators in 2015, banks lent 28.6% of all mortgages, according to data from Inside Mortgage Finance. That’s about half their share in 2012, when banks among the top 10 originators accounted for 54.4% of all mortgages.

For many analysts, that step is only natural. “The fact is that the cost of capital and compliance has convinced many bankers that making home loans to American families is not worth the risk,” said Chris Whalen, a long-time bank analyst now with Kroll Bond Rating Agency, in a speech early in February. Whalen expects the four largest commercial banks will “downsize or exit entirely from the business of originating and servicing residential mortgages.”

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Boomers. They’re supposed to be the richest Americans. “..the aggregate debt of the average Baby Boomer has soared 169% since 2003..”

Large Increase in Debts Held by Americans Over Age 50 (WSJ)

Americans in their 50s, 60s and 70s are carrying unprecedented amounts of debt, a shift that reflects both the aging of the baby boomer generation and their greater likelihood of retaining mortgage, auto and student debt at much later ages than previous generations. The average 65-year-old borrower has 47% more mortgage debt and 29% more auto debt than 65-year-olds had in 2003, according to data from the Federal Reserve Bank of New York released Friday. The result: U.S. household debt is vastly different than it was before the financial crisis, when many younger households had taken on large debts they could no longer afford when the bottom fell out of the economy.

The shift represents a “reallocation of debt from young [people], with historically weak repayment, to retirement- aged consumers, with historically strong repayment,” according to New York Fed economist Meta Brown in a presentation of the findings. Older borrowers have historically been less likely to default on loans and have typically been successful at shrinking their debt balances. But greater borrowing among this age group could become alarming if evidence mounted that large numbers of people were entering retirement with debts they couldn’t manage. So far, that doesn’t appear to be the case. Most of the households with debt also have higher credit scores and more assets than in the past.

“Retirement-aged consumers’ repayment has shown little sign of developing weakness as their balances have grown,” according to Ms. Brown. The data were released in conjunction with the New York Fed’s quarterly report on household debt, that aggregates millions of credit reports from the credit-rating agency Equifax. The report was launched in 2010 to track the changing debt behaviors of U.S. households after the financial crisis. For the last two years, household debts have been slowly rising, although they remain well below where they were in 2008. That trend continued in the final quarter of 2015, with overall household indebtedness rising by $51 billion to $ 12.1 trillion.

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Timber!

The Eurozone Crisis Is Back On The Boil (Guardian)

Greece is back in recession. Italy is barely growing. Portugal expanded but only at half the expected rate. The message could hardly be clearer: the next phase of the eurozone crisis is about to begin. On the face of it, the performance of the eurozone economy in the final three months of 2015 looks solid if unspectacular, with growth as measured by GDP up by 0.3%. But scratch beneath the surface and the picture looks far less rosy. The beneficial impacts of the European Central Bank’s quantitative easing programme have started to wear off, as has the effect of the big drop in oil prices in the second half of 2014. The eurozone peaked in the second quarter of 2015 and the trend was starting to weaken even before the recent turbulence on the financial markets.

Three individual countries bear closer examination. The first is Germany, for which growth of 0.3% in the fourth quarter of 2015 and 1.4% for the year as a whole is as good as it gets. Exports – the mainstay of the German economy – are going to face a much more challenging international climate in 2016, particularly with the euro strengthening on the foreign exchanges. Finland is noteworthy, not just because it is officially back in recession after two successive quarters of negative growth and still has a smaller economy than it did when the financial crisis erupted in 2008, but because its performance is worse than that of Denmark and Sweden, two Scandinavian EU members not in the single currency.

But by far the most worrying country is Greece, where a crumbling economy and the attempts to impose even more draconian austerity is leading, unsurprisingly, to violent protests on the streets. A contraction in growth makes it even harder for Greece to achieve the already ridiculously ambitious deficit and debt reduction targets set for it by its creditors, and on past form that will lead sooner or later (sooner in this case) to a fresh financial crisis and the imposition of further austerity measures. After six months out of the headlines, Greece is coming back to the boil. The danger is that other weak countries on the eurozone’s periphery – most notably Italy and Portugal – suffer from contagion effects.

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He’s trying so hard to boost Deutsche confidence it’ll backfire. People are going to say: ‘let’s see what you got’.

Schäuble Says Portugal Debt Woes Trump ‘Strong’ Deutsche Bank (BBG)

The volatile Portuguese bond market is more alarming than plunging confidence in Deutsche Bank AG, Europe’s largest lender, according to German Finance Minister Wolfgang Schaeuble. Even as a global rout in stocks has driven down European bank shares by 27% this year, Schaeuble warned on Friday after a meeting of EU finance ministers in Brussels that Portugal doesn’t have enough “resilience.” “Portugal must do everything to counter uncertainty in financial markets,” he said. The German finance minister’s comments come after the yield on Portugal’s 10-year bond fluctuated in a range of 143 basis points this week, the largest five-day swing since July 2013. Prime Minister Antonio Costa, who was sworn in at the end of November, has rolled back reform measures introduced during the nation’s bailout program that ended in 2014.

Deutsche Bank, which issued a statement Friday reassuring investors it has enough reserves to service debt obligations, “has sufficient capital and is well positioned,” Schaeuble said. In an effort to allay anxieties, the Frankfurt-based lender announced plans to buy back about $5.4 billion of bonds in euros and dollars Friday. The move comes after the cost of insuring its senior debt via credit-default swaps rose to the highest since 2011. Deutsche Bank isn’t alone as confidence in banks’ abilities to return profits in a low interest rate environment is waning. Global banks including Citigroup, Bank of America, Credit Suisse and Deutsche Bank have all plunged more than 32%. European finance ministers, when asked about the negative sentiment around European banks, remained upbeat, citing confidence in the safeguards put in place after Lehman Brothers went under in 2008. “We have taken precautions to make banks more resilient after the lessons from the financial and banking crisis,” Schaeuble said.

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The chain is as strong as…

European Banks Are In The Eye Of A New Financial Storm (Economist)

If the start of the year has been desperate for the world’s stockmarkets, it has been downright disastrous for shares in banks. Financial stocks are down by 19% in America. The declines have been even steeper elsewhere. Japanese banks’ shares have plunged by 36% since January 1st; Italian banks’ by 31% and Greek banks’ by a horrifying 60%. The fall in the overall European banking index of 24% has brought it close to the lows it plumbed in the summer of 2012, when the euro zone seemed on the verge of disintegration until Mario Draghi, the president of the ECB, promised to do “whatever it takes” to save it. The distress in Europe encompasses big banks as well as smaller ones. It has affected behemoths within the euro area such as Société Générale and Deutsche Bank – both of which saw their shares fall by 10% in hours this week – as well as giants outside it such as Barclays (based in Britain) and Credit Suisse (Switzerland).

The apparent frailty of European banks is especially disappointing given the efforts made in recent years to make them more robust, both through capital-raising and tougher regulation. Euro-zone banks issued over €250 billion ($280 billion) of new equity between 2007, when the global financial crisis began, and 2014, when the ECB took charge of supervising them. Before taking on the job, it combed through the books of 130 of the euro zone’s most important banks and found only modest shortfalls in capital. Some of the recent weakness in European banking shares arises from wider worries about the world economy that have also driven down financial stocks elsewhere. A slowdown in global growth is one threat. Another is that the negative interest rates being pursued by central banks to try to prod more life into economies will further sap banks’ profits.

A retreat in Japanese bank shares turned into a rout following such a decision in late January. Investors in European banks fret not just about lacklustre growth but also a possible move deeper into negative territory by the ECB in March. On February 11th Sweden’s central bank cut its benchmark rate from -0.35% to -0.5%, prompting shares in Swedish banks to tumble. But the malaise of European banking stocks has deeper roots. The fundamental problem is both that there are too many banks in Europe and that many are not profitable enough because they have clung to flawed business models. European investment banks lack the deep domestic capital markets that give their American competitors an edge. Deutsche, for instance, has only just resolved to hack back its investment bank in the face of a less hospitable regulatory environment following the financial crisis.

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What to say?

150,000 Penguins Die After Giant Iceberg Renders Colony Landlocked (Guardian)

An estimated 150,000 Adelie penguins living in Antarctica have died after an iceberg the size of Rome became grounded near their colony, forcing them to trek 60km to the sea for food. The penguins of Cape Denison in Commonwealth Bay used to live close to a large body of open water. However, in 2010 a colossal iceberg measuring 2900sq km became trapped in the bay, rendering the colony effectively landlocked.Penguins seeking food must now waddle 60km to the coast to fish. Over the years, the arduous journey has had a devastating effect on the size of the colony. Since 2011 the colony of 160,000 penguins has shrunk to just 10,000, according to research carried out by the Climate Change Research Centre at Australia’s University of New South Wales. Scientists predict the colony will be gone in 20 years unless the sea ice breaks up or the giant iceberg, dubbed B09B, is dislodged.

Penguins have been recorded in the area for more than 100 years. But the outlook for the penguins remaining at Cape Denison is dire. “The arrival of iceberg B09B in Commonwealth Bay, East Antarctica, and subsequent fast ice expansion has dramatically increased the distance Adélie penguins breeding at Cape Denison must travel in search of food,” said the researchers in an article in Antarctic Science. “The Cape Denison population could be extirpated within 20 years unless B09B relocates or the now perennial fast ice within the bay breaks out” “This has provided a natural experiment to investigate the impact of iceberg stranding events and sea ice expansion along the East Antarctic coast.” In contrast, a colony located just 8km from the coast of Commonwealth Bay is thriving, the researchers said. The iceberg had apparently been floating close to the coast for 20 years before crashing into a glacier and becoming stuck.

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The next trigger for mass migrations.

Four Billion People Face Severe Water Scarcity (Guardian)

At least two-thirds of the global population, over 4 billion people, live with severe water scarcity for at least one month every year, according to a major new analysis. The revelation shows water shortages, one of the most dangerous challenges the world faces, is far worse previously than thought. The new research also reveals that 500m people live in places where water consumption is double the amount replenished by rain for the entire year, leaving them extremely vulnerable as underground aquifers run down. Many of those living with fragile water resources are in India and China, but other regions highlighted are the central and western US, Australia and even the city of London. These water problems are set to worsen, according to the researchers, as population growth and increasing water use – particularly through eating meat – continues to rise.

In January, water crises were rated as one of three greatest risks of harm to people and economies in the next decade by the World Economic Forum, alongside climate change and mass migration. In places, such as Syria, the three risks come together: a recent study found that climate change made the severe 2007-2010 drought much more likely and the drought led to mass migration of farming families into cities. “If you look at environmental problems, [water scarcity] is certainly the top problem,” said Prof Arjen Hoekstra, at the University of Twente in the Netherlands and who led the new research. “One place where it is very, very acute is in Yemen.” Yemen could run out of water within a few years, but many other places are living on borrowed time as aquifers are continuously depleted, including Pakistan, Iran, Mexico, and Saudi Arabia. Hoekstra also highlights the Murray-Darling basin in Australia and the midwest of the US. “There you have the huge Ogallala acquifer, which is being depleted.”

He said even rich cities like London in the UK were living unsustainably: “You don’t have the water in the surrounding area to sustain the water flows” to London in the long term. The new study, published in the journal Science Advances on Friday, is the first to examine global water scarcity on a monthly basis and at a resolution of 31 miles or less. It analysed data from 1996-2005 and found severe water scarcity – defined as water use being more than twice the amount being replenished – affected 4 billion people for at least one month a year. “The results imply the global water situation is much worse than suggested by previous studies, which estimated such scarcity impacts between 1.7 billion and 3.1 billion people,” the researchers concluded. The new work also showed 1.8 billion people suffer severe water scarcity for at least half of every year.

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Making deals with Turkey while blaming Greece is just plain wrong on many different levels.

Merkel Turns to ‘Coalition of Willing’ to Tackle Refugee Crisis (BBG)

German Chancellor Angela Merkel is turning to a subgroup of European Union members to tackle the region’s refugee crisis as the bloc as a whole bickers over how to handle the biggest influx of migrants into Europe since World War II. Merkel plans to meet again with a “coalition of the willing” in Brussels ahead of an EU summit in the city next week. Turkish Prime Minister Ahmet Davutoglu will attend the talks, which have taken place at previous EU gatherings. Turkey is the main country from which migrants enter the EU. “This doesn’t have to do with a permanent distribution mechanism but rather a group of countries that are willing to consider” taking refugees once the illegal trafficking has been stopped, Merkel said Friday at a Berlin press conference with her Polish counterpart Beata Szydlo.

“We will then report quite transparently to all 28 member states where things stand.” Merkel traveled earlier this week to Turkey to discuss the crisis with Davutoglu. Merkel said on Monday the only way to end the flood of illegal migration across the Aegean Sea from Turkey into Greece was to replace it with a legal avenue. That would involve the EU resettling allotments of mostly Syrian refugees directly from Turkey in return for Turkey halting the flow of migrants, she said. The chancellor has thus far failed to secure a wider EU deal to share in housing and caring for those who have already reached the bloc.

Germany, which took in more than 1 million refugees last year, has pushed to implement a quota system to distribute migrants among EU members – something that a number of the bloc’s states, in particular in the east, argue should only be done on a voluntary basis. “For Poland, a permanent mechanism of relocating migrants is currently not acceptable,” Szydlo said at the press conference with Merkel. “I think we will continue talking about this. But I want to stress that Poland wants to actively participate in solving the migrant crisis because it’s very important for the EU as a whole.”

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They’re too thick to see that this means the end of the union.

EU Is Poised To Restrict Passport-Free Travel (AP)

EU countries are poised to restrict passport-free travel by invoking an emergency rule to keep some border controls for two more years because of the migration crisis and Greece’s troubles in controlling its border, according to EU documents seen by AP. The switch would reverse a decades-old trend of expanding passport-free travel in Europe. Since 1995, people have been able to cross borders among Schengen Area member countries without document checks. Each of the current 26 countries in the Schengen Area is allowed to unilaterally put up border controls for a maximum of six months, but that time limit can be extended for up to two years if a member is found to be failing to protect its borders.

The documents show that EU policy makers are preparing to make unprecedented use of an emergency provision by declaring that Greece is failing to sufficiently protect it border. Some 2,000 people are still arriving daily on Greek islands in smugglers’ boats from Turkey, most of them keen to move deeper into Europe to wealthier countries like Germany and Sweden. A European official showed the documents to the AP on condition of anonymity because the documents are confidential. Greek government officials declined to comment on the content of documents not made public. In Brussels on Friday, EU nations acknowledged that the overall functioning of Schengen “is at serious risk” and said Greece must make further efforts to address “serious deficiencies” within the next three months.

European inspectors visited Greek border sites in November and gave Athens until early May to upgrade the border management on its islands. Two draft assessments forwarded to the Greek government in early January indicated Athens was making progress, although they noted “important shortcomings” in handling migrant flows. But with asylum-seekers still coming at a pace ten times that of January 2015, European countries are reluctant to dismantle their emergency border controls. And if they keep them in place without authorization, EU officials fear the entire concept of the open-travel zone could be brought down. A summary written by an official in the EU’s Dutch presidency for a meeting of EU justice and home affairs ministers last month showed they decided that declaring Greece to have failed in its upgrade was “the only way” for Europe to extend the time for border checks.

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“..more than in the first four months of 2015..”

80,000 Refugees Arrive In Europe In First Six Weeks Of 2016 (UNHCR)

Despite rough seas and harsh winter weather, more than 80,000 refugees and migrants arrived in Europe by boat during the first six weeks of 2016, more than in the first four months of 2015, the UN Refugee Agency, UNHCR, announced today. In addition it said more than 400 people had lost their lives trying to cross the Mediterranean. However, despite the dangers over 2,000 people a day continue to risk their lives and the lives of their children attempting to reach Europe. Comparable figures for 2015 show such numbers only began arriving in July. “The majority of those arriving in January 2016, nearly 58%, were women and children; one in three people arriving to Greece were children as compared to just 1 in 10 in September 2015,” UNHCR’s Chief spokesperson Melissa Fleming told a press briefing in Geneva.

Fleming added that over 91% of those arriving in Greece come from the world’s top ten refugee producing countries, including Syria, Afghanistan and Iraq. “Winter weather and rough seas have not deterred those desperate enough to make the journey, resulting in near daily shipwrecks,” she added. When surveyed upon arrival, most of them cite they had to leave their homeland due to conflict. More than 56% of January arrivals to Greece were from Syria. However, UNHCR stressed that solutions to Europe’s situation were not only eminently possible, but had already been agreed by States and now urgently needed to be implemented. Stabilization is essential and something for which there is also strong public demand.

“Within the context of the necessary reduction of dangerous sea arrivals, safe access to seek asylum, including through resettlement and humanitarian admission, is a fundamental human right that must be protected and respected,” Fleming added. She said that regular pathways to Europe and elsewhere were important for allowing refugees to reach safety without putting their lives in the hands of smugglers and making dangerous sea crossings. “Avenues, such as enhanced resettlement and humanitarian admission, family reunification, private sponsorship, and humanitarian and refugee student/work visas, should be established to ensure that movements are manageable, controlled and coordinated for countries receiving these refugees,” Fleming added.

Vincent Cochetel, UNHCR’s Director Bureau for Europe, added that faced with this situation, UNHCR hoped that EU Member States would implement at a faster pace all EU-wide measures agreed upon in 2015, including the implementation of hotspots and the relocation process for 160,000 people already in Greece and Italy and the EU-Turkey Joint-Action Plan. “If Europe wants to avoid the mess of 2015, it must take action. There is no plan B,” he also told the briefing.

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Jan 312016
 
 January 31, 2016  Posted by at 10:07 am Finance Tagged with: , , , , , , , , , ,  


Edwin Rosskam Shoeshine, 47th Street, Chicago’s main Negro business street 1941

A Chinese Banker Explains Why There Is No Way Out (ZH)
China GDP Growth 4.3%, Or Lower, Chinese Professor Says (WSJ)
Yuan Vs. Yen: How China Figures Into Japan’s Negative Rates (WSJ)
IPO Market Comes to a Standstill (WSJ)
Greece’s Lenders To Start Bailout Review On Monday (Reuters)
Milk Collapse Brings a 45% Pay Cut to England’s Dairy Farmers (BBG)
‘Peak Stuff’ And The Search For Happiness (Guardian)
Merkel Says Refugees Must Return Home Once War Is Over (Reuters)
10,000 Refugee Children Are Missing, Says Europol (Observer)
Aegean Sea Refugee Crossings Rise 35 Fold Year-On-Year In January (Guardian)
Greeks Worry Threatened Closure Of EU Border ‘Definition Of Dystopia’ (Guar.)
Europe’s Immigration Bind: Morals vs Votes (Guardian)
39 Greece-Bound Refugees Drown Off Turkish Coast (AP)

“It’s not difficult to issue more loans, but let’s say in a years time when the loan is due, if the borrower defaults, then I won’t just see a pay cut, I’ll be fired, and still be responsible for loan recovery.”

A Chinese Banker Explains Why There Is No Way Out (ZH)

Friday’s adoption of NIRP by Japan, which send the US Dollar soaring, has only made any upcoming future Chinese devaluation even more likely. But whether China devalued or not, one thing is certain: it is next to impossible for China – under the current socio economic and financial regime – to stop the relentless growth in NPLs, which even by conservative estimates at in the trillion(s), accounting for at least 10% of China’s GDP. Sure enough, a cursory skimming of news from China reveals that even Chinese bankers now “admit the NPL situation is dire, but will keep on lending” anyway. As the Chiecon blog notes, NPL “ratios might be closer to 10%… supported by revelations in this article, where Chinese bankers complain of missing performance targets, spiraling bad loans, and end of year pay cuts.”

“Right now, we’ve nowhere to issue new loans” said Mr. Zhang, a general manager in charge of new loans at one of the listed commercial bank branches. Zhang believes NPL ratios have yet to peak, with SME loans the worst hit area. Ironically this has forced Zhang to direct lending back to the LGFVs, property developers and conglomerates, industries which the Chinese government had previously instructed banks to restrict lending to, based on oversupply and credit risk fears.

But the main reason why China is now trapped, and on one hand is desperate to stabilize its economy and stop growing its levereage at nosebleed levels, while on the other hand it is under pressure to issue more loans while at the same time it is unwilling to write off bad loans, can be found in the following very simple explanation offered by Mr. Zhou, a junior banker at a Chinese commercial bank.

“If I don’t issue more loans, then my salary isn’t enough to repay the mortgage, and car loan. It’s not difficult to issue more loans, but let’s say in a years time when the loan is due, if the borrower defaults, then I won’t just see a pay cut, I’ll be fired, and still be responsible for loan recovery.”

And that, in under 60 words, explains why China finds itself in a no way out situation, and why despite all its recurring posturing, all its promises for reform, all its bluster for deleveraging, China’s ruling elite will never be able to achieve an internal devaluation, and why despite its recurring threats to crush, gut and destroy all the evil Yuan shorts, ultimately it will have no choice but to pursue an external devaluation of its economy by way of devaluing its currency presumably some time before its foreign reserves run out (which at a $185 billion a month burn rate may not last for even one year). However, before it does, it will make sure that it also crushes every Yuan short, doing precisely what the Fed has done with equity shorts in the US over the past 7 years.

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While still ‘assuming the official agriculture and service sector growth figures are correct’.

China GDP Growth 4.3%, Or Lower, Chinese Professor Says (WSJ)

As growth in the world’s second-largest economy slows, the spotlight has intensified over the accuracy of China’s growth figures. This week, Xu Dianqing, an economics professor at Beijing Normal University and the University of Western Ontario, joined the debate with an estimate that China’s GDP growth rate might just be between 4.3% and 5.2%. China’s official growth rate in 2015 was 6.9%, the slowest pace in more than two decades, allowing the government to hit its target of around 7%. But longstanding questions over China’s statistical methodology have spurred a cottage industry in alternate growth indicators. Many of these analyze other measures believed to be less subject to political pressure in estimating actual growth, including indices compiled by economists at Capital Economics, Barclays Bank, the Conference Board and Oxford Economics.

Most peg China’s annual growth in the 4% to 6% range. Mr. Xu told reporters at a briefing this week that the focus of his concern is the growth rate for China’s manufacturing sector, which according to official figures grew 6.0% last year and accounts for 40.5% of the economy. A closer look at underlying indicators, however, including thermal power generation, railway freight volume, and output from the iron ore, plate glass, cement and steel industries released monthly by the National Bureau of Statistics paint a different picture, he said. Of some 60 major industrial products, nearly half saw output contract in the January to November period, while railway cargo volume fell 11.9% for all of last year, according to official sources.

Given weaker industrial output in China and more than three years of industrial deflation, a 6% expansion for manufacturing in 2015 is questionable “no matter how the number is counted,” said Mr. Xu, who added that he believes it’s more probable that industry and construction grew at most by 2% last year and perhaps not at all. That translates into economic growth that tops out at 5.2% last year and perhaps something in the 4s, assuming the official agriculture and service sector growth figures are correct, he said. Mr. Xu said it’s unlikely that the service sector– sometimes cited as an explanation for growth rate discrepancies – did better than reported by authorities.

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Twins.

Yuan Vs. Yen: How China Figures Into Japan’s Negative Rates (WSJ)

Japan’s move to negative interest rates is the latest step in a dangerous dance between the world’s second and third largest economies. The problem is currencies. China’s moves to bring down the value of the yuan have rattled markets this year, sparking a flight from risky assets that has sent investors into safer havens like the yen. The stronger yen in turn has threatened to tip Japan’s economy back into deflation, which the central bank has struggled to vanquish. The rising yen has also put more pressure on corporate profits and helped push Japanese stocks into bear market territory last week. So when the Bank of Japan announced its plan to lower interest rates below zero for the first time Friday, it makes sense that Governor Haruhiko Kuroda named just one country among the risks facing its economy China.

Now it’s China s turn to sweat. The yen fell as much as 2.1% after the announcement, which will make Chinese exports more expensive relative to Japanese products. The two countries, and most of their neighbors, are struggling against a tide of money outflows and weak trade. While governments in the rest of Asia have far more room to stimulate their economies than Japan does, a decline in the yen could spur them to try to push down their own currencies. Were China to follow and the central bank has already allowed the yuan to fall it would ignite another round of fear, which could push up the yen and force the Bank of Japan to act again. So far, the yen’s ups and downs have left it about where it was a year ago, so the risk of a cycle of competitive devaluation is limited.

In addition, the drop in the yen would have been a bigger problem for China when the yuan was pegged to the dollar. The government’s recent switch to a basket of currencies that includes the yen means the move up won’t be as big. But it still will push the currency in the wrong direction for the slowing economy. There’s another reason China does’ t want the yen to fall. Right now, thousands of Chinese are planning their Lunar New Year’s holidays in Japan early next month, hoping to take advantage of the cheap yen. During the October Golden Week, China’s other big travel week of the year, Chinese tourists descended on Japan, spending more than $830 million on shopping, according to the state-run China Daily.

China is suffering an epic capital flight in which hundreds of billions of dollars are leaving the country. A weaker yen will send more Chinese into Tokyo’s department stores and further drain China’s currency reserves. The economic fates of China and Japan are closely connected. Until their economies get on stronger footing, moves to boost growth in one country could hurt the other and risk retaliation. As the world economy stays weak, the interaction between China and Japan could play an increasingly important role both in Asia and globally.

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Zero.

IPO Market Comes to a Standstill (WSJ)

A frigid January for initial public offerings is pointing to a hard winter for fledgling biotechnology firms and other private companies. There were no U.S. IPOs in January, the first such month since the eurozone crisis in September 2011, according to data provider Dealogic. Investors and analysts attribute the dearth to the global stock-market rout of the first two weeks of the year, which signaled a broad retreat from risk by investors. If sustained, the reversal threatens to send ripples through global financial markets. Many analysts and traders view a healthy IPO sector as a necessary precondition for a sustainable advance in the broad stock indexes, as dozens of private companies have built their plans around raising cash in the public markets.

In recent years, markets were “wide open and companies that wanted to raise capital could,” said Eddie Yoon, portfolio manager of the Fidelity Select Health Care Portfolio, with $9 billion in assets. But now some companies, both public and private, could face being shut out for an extended period, as many investors seek to reduce risk by focusing on firms with histories of steady profitability and revenue growth. Several new share offerings by already-public biotech companies have floundered this year, not only pricing at steep discounts, but also falling even further the session after pricing. So far this year, new-share offerings by biotech companies have dropped 15% from the time of the announcement of the deal to the end of trading after the sale, according to data from Dealogic. “If the market does reopen, it will be for higher quality companies,” said Mr. Yoon.

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France wants debt relief?!

Greece’s Lenders To Start Bailout Review On Monday (Reuters)

Greece’s official lenders will start a review on Monday of what progress the country has made in implementing the economic reforms agreed under its third bailout, a necessary step towards debt relief talks, a finance ministry official said on Saturday. Greece’s international lenders are the IMF and the euro zone bailout fund. The reforms that Greece has to implement in exchange for loans are also reviewed by the ECB and the European Commission. “The first phase will last a few days as there will be a break at the end of next week, after which the institutions will return to conclude the negotiations,” the official said, declining to be named. Athens is keen for a speedy completion of the review, which was expected to begin late last year, and hopes a positive outcome will help boost economic confidence and liquidity.

To secure a positive result from the review Athens needs to pass legislation on pension reforms to render its social security system viable, set up a new privatization fund and come up with measures to attain primary budget surpluses for 2016-2018. A successful conclusion of the performance review will open the way for debt relief talks. The head of the bailout fund, the European Stability Mechanism (ESM), has ruled out a haircut for Greece’s debt but extending debt maturities and deferring interest are options that could be used to make it more manageable. French Finance Minister Michel Sapin told Kathimerini debt relief talks must start soon to help restore Greece’s financial stability. “France’s view is that the sooner the first review is completed, the faster we will be able to tackle the issue of debt sustainability and this will be better for everyone – for Greece as well as the entire euro zone,” Sapin told the paper.

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Stories from NZ have been bad for a while now.

Milk Collapse Brings a 45% Pay Cut to England’s Dairy Farmers (BBG)

England’s dairy farmers will see income fall by almost half this year, evidence that the global milk crisis is far from over. Earnings will average 46,500 pounds ($66,500) per farm in England for the 2015-16 season that started in March, the Department for Environment, Food & Rural Affairs said in a report Thursday. That figure, which includes European Union aid payments, is 45 percent below the prior season and the lowest in 9 years. Dairy farmers across Europe are struggling with a collapse in prices after a global oversupply of milk was compounded by slowing demand in China and Russia’s ban on EU dairy in retaliation for sanctions.

Protests over low prices broke out in France this week as more than 100 farmers, many of them livestock breeders, blocked roads and used tractors and burning tires to stop access to the port city La Rochelle. “There’s too much milk in the world,” said Robbie Turner, head of European markets at Rice Dairy International, a risk management advisory firm in London. “There are people who are hard for cash,” and prices are likely to remain low for at least the next six months, he said. On Thursday, Fonterra, the world’s largest dairy exporter, cut its milk price forecast to a nine-year low. The Auckland-based company doesn’t expect a sharp recovery in Chinese demand any time soon.

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Luckily we’re maxed out.

‘Peak Stuff’ And The Search For Happiness (Guardian)

On Monday, Walmart will start paying a minimum of $10 an hour to its 1.4 million skilled staff in America – in conventional economists’ terms, a ludicrous and unnecessary transfer of income from capital to labour. But, facing the same retail environment as Apple and Ikea, Walmart wants to motivate its frontline staff into being more engaged and innovative. Consumers want some help in understanding and interpreting their particularities, help in answering the question of what, in a profound sense, their spending is for. When you have enough, what need is being served by having more?

Economists are not equipped to address such phenomena. Faltering growth in consumer demand in all western countries is understood wholly in traditional economic terms: the story is that consumers are indebted and uncertain, they lack confidence and want to rebuild their savings. Rightwing, anti-state economists, so influential in the Republican and Conservative parties, peddle tax cuts as the universal panacea. Like Pavlov’s dog, consumers will flock back to the shops once they are emboldened by a tax cut. Obviously, there would be some increase in spending, but far less than there used to be. More fundamental forces are holding back spending .

There is a quest for meaning, aided and abetted by the knowledge and information revolutions, that is not answered by traditionally scale-produced goods and services. Economist Tomas Sedlacek, who has won an international following for his book Economics of Good and Evil, insists that contemporary societies have become slaves to a defunct economistic view of the world. When western societies were poorer, it was reasonable for economics to focus on how to produce more stuff – that was what societies wanted. Now, the question is Aristotelian: how to live a happy life – or “humanomics”, as Sedlacek calls it. Aristotle was clear: happiness results from deploying our human intelligence to act creatively on nature. To inquire and successfully to quest for understanding is the root of happiness.

Yet most people today, says Sedlacek, work in jobs they do not much like, to buy goods they do not much value – the opposite of any idea of the good life, Aristotelian or otherwise. What we want is purpose and a sense of continual self-betterment, which is not served by buying another iPhone, wardrobe or a kitchen. Yet purpose and betterment need a social context: purpose is a shared endeavour and self-betterment is to act on the world better with others. An individualistic society such as our own makes it much harder to find others with whom to make common cause.

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Well, stop the war then.

Merkel Says Refugees Must Return Home Once War Is Over (Reuters)

German Chancellor Angela Merkel tried on Saturday to placate the increasingly vocal critics of her open-door policy for refugees by insisting that most refugees from Syria and Iraq would go home once the conflicts there had ended. Despite appearing increasingly isolated, Merkel has resisted pressure from some conservatives to cap the influx of refugees, or to close Germany’s borders. Support for her conservative bloc has slipped as concerns mount about how Germany will integrate the 1.1 million migrants who arrived last year, while crime and security are also in the spotlight after a wave of assaults on women in Cologne at New Year by men of north African and Arab appearance.

The influx has played into the hands of the right-wing Alternative for Germany (AfD), whose support is now in the double digits, and whose leader was quoted on Saturday saying that migrants entering illegally should, if necessary, be shot. Merkel said it was important to stress that most refugees had only been allowed to stay for a limited period. “We need … to say to people that this is a temporary residential status and we expect that, once there is peace in Syria again, once IS has been defeated in Iraq, that you go back to your home country with the knowledge that you have gained,” she told a regional meeting of her Christian Democratic Union (CDU) in the state of Mecklenburg-Western Pomerania.

Merkel said 70 percent of the refugees who fled to Germany from former Yugoslavia in the 1990s had returned. Horst Seehofer, leader of the Christian Social Union (CSU), the CDU’s Bavarian sister party, has threatened to take the government to court if the flow of asylum seekers is not cut. Merkel urged other European countries to offer more help “because the numbers need to be reduced even further and must not start to rise again, especially in spring”. Fabrice Leggeri, the head of the European Union’s border agency Frontex, said a U.N. estimate that up to a million migrants could try to come to Europe via the eastern Mediterranean and Western Balkans next year was realistic. “It would be a big achievement if we could keep the number … stable,” he told the magazine Der Spiegel.

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Europe doesn’t care for kids.

10,000 Refugee Children Are Missing, Says Europol (Observer)

At least 10,000 unaccompanied child refugees have disappeared after arriving in Europe, according to the EU’s criminal intelligence agency. Many are feared to have fallen into the hands of organised trafficking syndicates. In the first attempt by law enforcement agencies to quantify one of the most worrying aspects of the migrant crisis, Europol’s chief of staff told the Observer that thousands of vulnerable minors had vanished after registering with state authorities. Brian Donald said 5,000 children had disappeared in Italy alone, while another 1,000 were unaccounted for in Sweden. He warned that a sophisticated pan-European “criminal infrastructure” was now targeting refugees.

“It’s not unreasonable to say that we’re looking at 10,000-plus children. Not all of them will be criminally exploited; some might have been passed on to family members. We just don’t know where they are, what they’re doing or whom they are with.” The plight of unaccompanied child refugees has emerged as one of the most pressing issues in the migrant crisis. Last week it was announced that Britain would accept more unaccompanied minors from Syria and other conflict zones. According to Save the Children, an estimated 26,000 unaccompanied children entered Europe last year. Europol, which has a 900-strong force of intelligence analysts and police liaison officers, believes 27% of the million arrivals in Europe last year were minors.

“Whether they are registered or not, we’re talking about 270,000 children. Not all of those are unaccompanied, but we also have evidence that a large proportion might be,” said Donald, indicating that the 10,000 figure is likely to be a conservative estimate of the actual number of unaccompanied minors who have disappeared since entering Europe. In October, officials in Trelleborg, southern Sweden, revealed that some 1,000 unaccompanied refugee children who had arrived in the port town over the previous month had gone missing. On Tuesday a separate report, again from Sweden, warned that many unaccompanied refugees vanished and that there was “very little information about what happens after the disappearance”.

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But they think they can stop it.

Aegean Sea Refugee Crossings Rise 35 Fold Year-On-Year In January (Guardian)

More than 52,000 refugees and migrants crossed the eastern Mediterranean to reach Europe in the first four weeks of January, more than 35 times as many as attempted the crossing in the same period last year. The daily average number of people making the crossing is nearly equivalent to the total number for the whole month of January as recently as two years ago, according to the International Organisation for Migration. More than 250 people have died attempting to make the crossing this month, including at least 39 who drowned in the Aegean Sea on Saturday morning after their boat capsized between Turkey and Greece. Turkish coastguards rescued 75 others from the sea near the resort of Ayvacik on Saturday, according to the Anadolou news agency.

They had been trying to reach the Greek island of Lesbos. The eastern route into Europe, via Greece, has overtaken the previously popular central Mediterranean route from north Africa over the past year. Refugees have continued to use the route all winter, despite rough seas and strong winds. “An estimated 52,055 migrants and refugees have arrived in the Greek islands since the beginning of the year,” the IOM said. “This is close to the total recorded in the relatively safe month of July 2015, when warm weather and calm seas allowed 54,899 to make the journey.” Turkey, which is hosting at least 2.5 million refugees from the civil war in neighbouring Syria, has become the main launchpad for migrants fleeing war, persecution and poverty.

Ankara struck a deal with the EU in November to halt the flow of refugees, in return for €3bn (£2.3bn) in financial assistance to help improve the refugees’ conditions. This week the IOM reported that a survey of migrants and refugees arriving in Greece showed 90% were from Syria, Iraq or Afghanistan. People of those nationalities are allowed to leave Greece and enter Macedonia en route to western Europe as asylum seekers. But on Wednesday the Idomeni border crossing from Greece to Macedonia remained closed from midday to midnight. Macedonian officials blamed congestion at the border with Serbia.

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“Why is Greece guilty? Because it doesn’t let them drown?”

Greeks Worry Threatened Closure Of EU Border ‘Definition Of Dystopia’ (Guar.)

With Brussels contemplating drastic measures to stem the flow, calls are mounting to seal the Greek-Macedonian border, raising fears of hundreds of thousands being stranded in Greece, the country now perceived to be the continent’s weakest link. The prospect of migrants being trapped in a member state that financially is also Europe’s most fragile may once have seemed extreme, even absurd. Its economy ravaged by six years of internationally mandated austerity and record levels of unemployment, Greece’s coping strategies are markedly strained. But as EU policymakers seek ever more desperate ways to deal with what has become the largest mass movement of people since the second world war, it is an action plan being actively worked on by mandarins at the highest level.

Like so much else in the great existential crisis facing Europe, a proposed policy that was once seen as bizarre now looks like it could become real. Last week Athens was also given a three-month ultimatum to improve the way it processes arrivals and polices its borders – at nearly 8,700 miles the longest in Europe – or face suspension from the passport-free Schengen zone. Closure of the Greek-Macedonian frontier would effectively cut it out of that fraternity. Those who have watched Greece’s rollercoaster struggle to keep insolvency at bay are united in their conviction that the move would be catastrophic. “It would place a timebomb under the foundations of Greece,” says Aliki Mouriki at the National Centre of Social Research. “Hundreds of thousands of refugees trapped in a country that is bankrupt, that has serious administrative and organisational weaknesses, with a state that is unable to provide for their basic needs?”

The question hangs in the air while she searches for the right word. “What we would witness,” she adds, “would be the definition of dystopia.” Like the mayors who have been forced to deal with the emergency on Greece’s eastern Aegean isles, federal politicians believe Turkey is the root of the problem. “With all due respect for a country that is hosting 2 million refugees, it is Turkey that must do something to stop the organised crime, the smugglers working along its coast,” Yannis Mouzalas, the minister for migration policy, told the Observer. “These flows are not Greece’s fault even if, it is true, we have been slow to set up hotspots and screening was not always what it should have been,” he said. “It is Turkey that turns a blind eye to them coming here. It is Turkey that must stop them. Why is Greece guilty? Because it doesn’t let them drown?”

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Morals? Europe?

Europe’s Immigration Bind: Morals vs Votes (Guardian)

The dream of free movement within the EU has also spawned paranoia about the movement of people into the EU. The quid pro quo for Schengen has been the creation of a Fortress Europe, a citadel against immigration, watched over by a hi-tech surveillance system of satellites and drones and protected by fences and warships. When a journalist from Germany’s Der Spiegel magazine visited the control room of Frontex, the EU’s border agency, he observed that the language used was that of “defending Europe against an enemy”. Many of the policies enacted over the past year give a sense of a continent at war. In June, an emergency EU meeting came up with a 10-point plan that included the use of military force “to capture and destroy” the boats used to smuggle migrants.

Soon afterwards, Hungary and other east European countries began erecting razor-wire fences. Germany, Austria, France, Sweden and Denmark suspended Schengen rules and reintroduced border controls. In November, the EU struck a deal with Turkey, promising it up to $3.3bn in return for clamping down on its borders. This month, Denmark passed a law allowing it to seize valuables from asylum seekers to pay for their upkeep. Despite the sense that the crisis is unprecedented, there is nothing new in it or the incoherence of the EU’s response. People have been trying to enter the EU, and dying in the attempt, for a quarter of a century and more.

Until 1991, Spain had an open border with North Africa. Migrant workers would come to Spain for seasonal work and then return home. In 1986, the newly democratic Spain joined the EU. As part of its obligations as a EU member, it had to close its North African borders. Four years after it did, it was admitted into the Schengen group. The closing of the borders did not stop migrant workers trying to enter Spain. Instead, they took to small boats to cross the Mediterranean. On 19 May 1991, the first bodies of clandestine migrants were washed ashore. Since then, it is estimated that more than 20,000 people have perished in the Mediterranean while trying to enter Europe.

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Every day.

39 Greece-Bound Refugees Drown Off Turkish Coast (AP)

Turkey’s state-run news agency says at least 39 people, including five children, have drowned in the Aegean Sea after their Greece-bound boat capsized off the Turkish coast. Anadolu Agency says coast guards rescued 75 others from the sea Saturday near the resort of Ayvacik en route to the Greek island of Lesbos. The agency has identified the survivors as natives of Afghanistan, Syria and Myanmar. The International Organization for Migration says 218 people have died this year while trying to cross by sea from Turkey to Greece. Turkey is hosting an estimated 2.5 million refugees from Syria. In November, Turkey agreed to fight smuggling networks and stem the flow of migrants into Europe. In return, the EU has pledged €3 billion to help improve the refugees’ conditions.

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