Apr 242018
 
 April 24, 2018  Posted by at 9:17 am Finance Tagged with: , , , , , , , , , , ,  


John French Sloan A Woman’s Work 1912

 

Japan Can Begin Reducing Stimulus In Five Years – Kuroda (CNBC)
ECB Mulls Shelving Rules Tackling Euro Zone’s Bad Loans Pile (R.)
The Return Of Honest Bond Yields (Stockman)
Stop and Assess (Jim Kunstler)
The Chinese Car Invasion Is Coming (BBG)
Greek Primary Surplus Comes At The Expense Of Growth (K.)
Tensions Grow On Greek Islands (K.)
The UK Has Turned The Right To Education Into A Charitable Cause (G.)
UK Food Bank Use Reaches Highest Rate On Record (Ind.)
Finland To End Basic Income Trial After Two Years (G.)

 

 

Abenomics is a miserable failure. Which is why Abe’s popularity is scraping the gutter. But we keep on pretending. Five years? Why not make it ten, or fifty? Kuroda is stuck….

Japan Can Begin Reducing Stimulus In Five Years – Kuroda (CNBC)

The Bank of Japan will be able to begin winding down its extraordinary monetary stimulus within the next five years, the head of the central bank said. “Sometime within the next five years, we will reach [our] 2% inflation target,” Governor Haruhiko Kuroda told CNBC’s Sara Eisen over the weekend. Once that level is reached, we will start “discussing how to gradually normalize the monetary condition.” Kuroda began his second five-year term this year. He has implemented a massive stimulus policy by cutting the central bank’s benchmark interest rate to negative, keeping the 10-year Japanese government bond yield near 0% in an effort to control the yield curve and stepping up the Bank of Japan’s asset purchases.

However, inflation remains low. Japan reported its consumer price index, excluding fresh food and energy, rose 0.5% in the 12 months through March. “In order to reach [our] 2% inflation target, I think the Bank of Japan must continue very strong accommodative monetary policy for some time,” Kuroda added in his interview with CNBC. Japan’s efforts to boost the sluggish national economy come amid steady growth around the world. The IMF predicts the global economy will increase 3.9% this year and next. Kuroda agreed with the positive outlook. “The world economy will continue to grow at a relatively high pace,” he said. For this year and next, “we don’t see any sign of a turning point.” But protectionism, unexpected rapid tightening of monetary policy in some countries, and geopolitical tensions in North Korea and the Middle East pose potential risks, Kuroda said.

Read more …

… and Draghi is stuck too. My article yesterday was timely. The outgoing Bundesbank director in charge of banking supervision says the ECB’s credibility is at stake. A dangerous thing to say.

ECB Mulls Shelving Rules Tackling Euro Zone’s Bad Loans Pile (R.)

The European Central Bank, after suffering a political backlash, is considering shelving planned rules that would have forced banks to set aside more money against their stock of unpaid loans. The guidelines, which were expected by March, had been presented as a main plank of the ECB’s plan to bring down a 759 billion euro ($930 billion) pile of soured credit weighing on euro zone banks, particularly in Greece, Portugal and Italy. The ECB was now considering whether further policies on legacy non-performing loans (NPLs) were necessary “depending on the progress made by individual banks”, an ECB spokeswoman said.

No decision had been made yet and the next steps were still being evaluated, she said. Central Bank sources told Reuters that if the rules were scrapped, supervisors would look to continue putting pressure on problem banks using existing powers. An alternative would be to hold off until the results of pan-European stress tests are published in November but this would be close to the end of Daniele Nouy’s mandate as the head of the ECB’s Single Supervisory Mechanism at the end of the year. A clean-up of banks’ balance sheets from toxic assets inherited from the financial crisis is a precondition for getting countries like Germany to agree on a common euro zone insurance on bank deposits.

And Andreas Dombret, the outgoing Bundesbank director in charge of banking supervision, said in an interview published on Monday that the ECB’s credibility was at stake. “One cannot say that NPLs are one of the biggest risk for the European banking sector and a top priority and then fail to act,” he told Boersen-Zeitung. “It’s about the credibility of the SSM,” he said, calling for a “timely proposal”.

Read more …

And as the central bankers find themselves trapped, the bond vigilantes roam free.

The Return Of Honest Bond Yields (Stockman)

In the wee hours this AM, the yield on the 10-year treasury note hit 2.993%. That’s close enough for gubermint work to say that the big 3.00% inflection point has now been tripped. And it means, in turn, that the end days of the Bubble Finance era have well and truly commenced. In a word, honest bond yields will knock the stuffings out of the mainstream fairy tale that passes for economic and financial reality. And in a 2-3% inflation world, by honest bond yields we mean 3% + on the front-end and 4-5% on the back-end of the yield curve. Needless to say, that means big trouble for the myth of MAGA. As we demonstrated in part 2, since the Donald’s inauguration there has been no acceleration in the main street economy—just the rigor mortis spasms of a stock market that has been endlessly juiced with cheap debt.

But the Trump boomlet in the stock averages has now hit its sell-by date. That’s because today’s egregiously inflated equity prices are in large part a product of debt-fueled corporate financial engineering—stock buybacks, unearned dividends and massive M&A dealing. Thus, since the pre-crisis peak in Q3 2007 nonfinancial corporate sector value added is up by 34%, but corporate debt securities outstanding have risen by 85%; and the overwhelming share of that massive debt increase was used to fund financial engineering, not productive assets and future earnings growth. In a world of honest interest rates, of course, this explosion of non-productive debt would have chewed into earnings good and hard because the borrowed cash went to Wall Street, not into the wherewithal of earnings growth.

In fact, during the past 10 years, net value added generated by US nonfinancial corporations rose by just $2 trillion (from $6.1 trillion to $8.1 trillion per annum), whereas corporate debt rose by nearly $3 trillion (from $3.3 trillion to $6.1 trillion). So it should have been a losing battle—with interest expense rising far faster than operating profits. But owing to the Fed’s misguided theory that it can make the main street economy bigger and stronger by falsifying interest rates and other financial asset prices, the C-suite financial engineers got a free hall pass. That is, they pleasured Wall Street by pumping massive amounts of borrowed cash back into the casino, but got no black mark on their P&Ls.

Read more …

“That’s what happens when money is just a representation of debt that can’t be paid back.”

Stop and Assess (Jim Kunstler)

Let’s pause today and make an assessment of where things stand in this country as Winter finally coils into Spring. As you might expect, a nation overrun with lawyers has litigated itself into a cul-de-sac of charges, arrests, suits, countersuits, and allegations that will rack up billable hours until the Rockies tumble. The best outcome may be that half the lawyers in this land will put the other half in jail, and then, finally, there will be space for the rest of us to re-connect with reality.

What does that reality consist of? Troublingly, an economy that can’t go on as we would like it to: a machine that spews out ever more stuff for ever more people. We really have reached limits for an industrial economy based on cheap, potent energy supplies. The energy, oil especially, isn’t cheap anymore. The fantasy that we can easily replace it with wind turbines, solar panels, and as-yet-unseen science projects is going to leave a lot of people not just disappointed but bereft, floundering, and probably dead, unless we make some pretty severe readjustments in daily life.

We’ve been papering this problem over by borrowing so much money from the future to cover costs today that eventually it will lose its meaning as money — that is, faith that it is worth anything. That’s what happens when money is just a representation of debt that can’t be paid back. This habit of heedless borrowing has enabled the country to pretend that it is functioning effectively. Lately, this game of pretend has sent the financial corps into a rapture of jubilation. The market speed bumps of February are behind us and the road ahead looks like the highway to Vegas at dawn on a summer’s day.

Tesla is the perfect metaphor for where the US economy is at: a company stuffed with debt plus government subsidies, unable to deliver the wished-for miracle product — affordable electric cars — whirling around the drain into bankruptcy. Tesla has been feeding one of the chief fantasies of the day: that we can banish climate problems caused by excessive CO2, while giving a new lease on life to the (actually) futureless suburban living arrangement that we foolishly invested so much of our earlier capital building. In other words, pounding sand down a rat hole.

Read more …

Yeah, we need more cars…

The Chinese Car Invasion Is Coming (BBG)

On a bright spring day in Amsterdam, car buffs stepped inside a blacked-out warehouse to nibble on lamb skewers and sip rhubarb cocktails courtesy of Lynk & Co., which was showing off its new hybrid SUV. What seemed like just another launch of a new vehicle was actually something more: the coming-out party for China’s globally ambitious auto industry. For the first time, a Chinese-branded car will be made in Western Europe for sale there, with the ultimate goal of landing in U.S. showrooms.

That’s the master plan of billionaire Li Shufu, who has catapulted from founding Geely Group as a refrigerator maker in the 1980s to owning Volvo Cars, British sports carmaker Lotus, London Black Cabs and the largest stake in Daimler —the inventor of the automobile. Li is spearheading China’s aspirations to wedge itself among the big three of the global car industry—the U.S., Germany and Japan—so they become the Big Four. “I want the whole world to hear the cacophony generated by Geely and other made-in-China cars,” Li told Bloomberg News. “Geely’s dream is to become a globalized company. To do that, we must get out of the country.”

[..] Chinese companies have announced at least $31 billion in overseas deals during the past five years, buying stakes in carmakers and parts producers, according to data compiled by Bloomberg. The most prolific buyer is Li, who spent almost $13 billion on stakes in Daimler and truckmaker Volvo. Tencent Holdings Ltd., Asia’s biggest internet company, paid about $1.8 billion for 5% of Tesla. As software and electronics become just as critical to a car as the engine, China is ensuring it doesn’t lag behind in that market, either. Baidu, owner of the nation’s biggest search engine, announced a $1.5 billion Apollo Fund to invest in 100 autonomous-driving projects during the next three years.

“We have secured a chance to compete in the U.S. market of self-driving cars through those partnerships,” Li Zhengyu, a vice president overseeing Baidu’s intelligent-driving unit, told Bloomberg News. “Everyone has a good chance to win if it has good development plans.”

Read more …

The Troika demands that Greece kills its society even more. 4.2% of GDP disappears from the economy. Where it’s so badly needed.

Greek Primary Surplus Comes At The Expense Of Growth (K.)

The 2017 budget has officially registered a record primary surplus of 4.2% of GDP, against a target for 1.75%, but this came at a particularly heavy price for the economy, which grew just 1.4% against a budget target for 2.7%. It is obvious that securing primary surpluses of more than twice the target, depriving the economy of precious resources, is directly associated with the stagnation of growth compared to original projections. It is no coincidence that consumption edged up just 0.1% last year, which analysts have attributed to taxpayers’ exhaustion due to overtaxation. The surplus was mainly a result of drastic cuts to the Public Investments Program (by about 800 million euros) and social benefits, due to the delay in the application of the Social Solidarity Income.

The government was quick to express its satisfaction upon the release of the fiscal results by the Hellenic Statistical Authority on Monday, although it was just two years ago that Prime Minister Alexis Tsipras accused the previous administration of setting excessive targets for the primary surpluses of 2016, 2017 and 2018 at 4.5% of GDP. Eventually he reached that target with his own government, although the creditors had lowered the bar, to 1.75% for 2017 and 3.5% this year. The Finance Ministry spoke yesterday of proof of “the credibility of the fiscal management,” adding that “those data show that not only is the target of 3.5% feasible for this and the coming years, but there will also be some fiscal space for targeted tax easing and social expenditure in the post-program period.”

That reference concerns the so-called “countermeasures” the government has planned in case it exceeds the 3.5% target in the 2019 and 2020 primary surpluses, but for now they are at the discretion of the IMF, which will decide next month whether they can be introduced. Obviously Athens hopes the 2017 figures will positively affect the Fund’s view. There was also a positive response from Brussels on Monday, with European Commissioner for Economic Affairs Pierre Moscovici and Commission spokesman Margaritis Schinas stating that the efforts and sacrifices of the Greek people are now paying dividend.

Read more …

The new head of the Greek Asylum Service flatly ignores the Council of State. Greek justice system overpowered by Brussels and Berlin.

Tensions Grow On Greek Islands (K.)

Concerns have peaked over tensions on the Aegean islands following clashes between residents of Lesvos and migrants in Mytilene port which led to several injuries. Riot police were forced to intervene early Monday morning after dozens of local residents started protesting the presence of migrants in the main square of Mytilene. The migrants, who had been camping in the square since last Tuesday demanding to be allowed to leave the island, were put onto buses and taken back to overcrowded state facilities. According to local reports, the protesters threw flares, firecrackers and stones at the migrants, who formed a circle around women and children to protect them.

Some protesters chanted “Burn them alive,” according to reports which suggested that members of far-right groups were involved. Police detained 122 people – all but two of whom were Afghan migrants – while 28 people were transferred to the hospital for first-aid treatment, 22 of whom were migrants. Political parties issued statements blaming the attack on far-right groups. The mayor of Lesvos, Spyros Galinos, did not rule out the presence of extremists on the island but pointed to broader frustration among locals. “Society is reacting as a whole,” said Galinos, who had appealed to the government last week to reduce overcrowding on the islands.

[..] meanwhile, the new head of the Greek Asylum Service, Markos Karavias, signed an agreement effectively restricting migrants arriving on the Aegean islands from traveling on to the mainland. A Council of State ruling last week overturned previous asylum service restrictions on migrants leaving the islands. The government’s proposed changes to asylum laws – aimed at speeding up the slow pace at which applications are processed – are to be discussed in Parliament on Tuesday.

Read more …

How poor Britain is becoming.

The UK Has Turned The Right To Education Into A Charitable Cause (G.)

My nine-year-old son looks at me anxiously. “Mum, you definitely, definitely have my sponsor money plus an extra pound, which I need for the fundraising games. We have to bring it in today.” I search through my wallet for a quid each for him and his brother. I’ve got no cash on me. “We have to,” he repeats, his voice going wobbly. I stick an IOU in his piggy bank and the day is saved. Yet again. And yet again I feel infuriated and indignant at being put in this position. Then I feel even more cross that I now feel mean. Cake sale, plant sale, ticket for a pamper evening, music quiz, another cake sale, school disco (with associated plastic tat and penny sweets on sale), pay to see Santa, raffle for the chocolate hamper (that you’ve already sent in the goddamn chocolate for), dress up for World Book Day (that’s a quid), go pink for breast cancer research (that’s two quid) and why not run a sponsored mile for Sport Relief while you’re at it.

Then … ping! Oh joy, a text from school – another (another?!) cake sale. How much sugar is going down in that playground? The texts keep flooding in. Ransack your wardrobe for Bag 2 School; send in dosh so your child can buy you a Mother’s Day present; scrabble through your (now denuded) wardrobe for next week’s clothes swap and pretty please, the PTA would appreciate donations of booze for this year’s summer fete. If enough of you don’t stump up by Friday, you’ll be harangued daily until you do. Welcome to summer term, peak time for school fundraising – and what feels like a constant assault. Let’s put aside my irritation at being “chugged” via leaflets in book-bags and my mobile phone, in principle it’s a good thing for kids to think about the needs of people other than themselves, so I’ll swallow official charity fundraisers on that basis, even if those charities might not be my personal choice.

What is outrageous, though, is the assumption in some schools that parents can easily afford to donate on a virtually weekly basis, and the idea that we should expect to be paying on top of our taxes for our children’s state education. Schools, suffering the terrible results of the government’s austerity policies, have cut to the chase and are now pumping parents for regular direct debits to cover essentials. But is asking parents to pay doing pupils’ education any good?

Read more …

No surprise.

UK Food Bank Use Reaches Highest Rate On Record (Ind.)

Food bank use has soared at a higher rate than ever in the past year as welfare benefits fail to cover basic living costs, the UK’s national food bank provider has warned. Figures from the Trussel Trust show that in the year to March 2018, 1,332,952 three-day emergency food supplies were delivered to people in crisis across the UK – a 13% increase on last year. This marks a considerably higher increase than the previous financial year, when it rose by 6%. Low income is the biggest single – and fastest growing – reason for referral to food banks, accounting for 28% of referrals compared to 26% in the previous year. Analysis of trends over time demonstrates it has significantly increased since April 2016.

Being in debt also accounted for an increasing percentage of referrals – at 9% of referrals up from 8% in the past year. The cost of housing and utility bills are increasingly driving food bank referrals for this reason, with the proportion of referrals due to housing debt and utility bill debt increasing significantly since April 2016. The other main primary referral reasons in the past year were benefit delays (24%) and benefit changes (18%). “Reduction in benefit value” have the fastest growth rate of all referrals made due to a benefit change, while those due to “moving to a different benefit” have also grown significantly.

Read more …

It’s dangerous when people trial basic income schemes who don’t understand them. Others will say: it failed in Finland! No it didn’t. It has to be universal, and this is not.

Finland To End Basic Income Trial After Two Years (G.)

Europe’s first national government-backed experiment in giving citizens free cash will end next year after Finland decided not to extend its widely publicised basic income trial and to explore alternative welfare schemes instead. Since January 2017, a random sample of 2,000 unemployed people aged 25 to 58 have been paid a monthly €560 (£475) , with no requirement to seek or accept employment. Any recipients who took a job continued to receive the same amount. The government has turned down a request for extra funding from Kela, the Finnish social security agency, to expand the two-year pilot to a group of employees this year, and said payments to current participants will end next January.

It has also introduced legislation making some benefits for unemployed people contingent on taking training or working at least 18 hours in three months. “The government is making changes taking the system away from basic income,” Kela’s Miska Simanainen told the Swedish newspaper Svenska Dagbladet. The scheme – aimed primarily at seeing whether a guaranteed income might incentivise people to take up paid work by smoothing out gaps in the welfare system – is strictly speaking not a universal basic income (UBI) trial, because the payments are made to a restricted group and are not enough to live on.

But it was hoped it would shed light on policy issues such as whether an unconditional payment might reduce anxiety among recipients and allow the government to simplify a complex social security system that is struggling to cope with a fast-moving and insecure labour market. Olli Kangas, an expert involved in the trial, told the Finnish public broadcaster YLE: “Two years is too short a period to be able to draw extensive conclusions from such a big experiment. We should have had extra time and more money to achieve reliable results.”

Read more …

Feb 222018
 
 February 22, 2018  Posted by at 10:55 am Finance Tagged with: , , , , , , , , ,  


Arthur Rothstein Wasatch Mountains. Summit County, Utah 1940

 

Bond Yields Moving From ‘Sweet Spot’ To Riskier Area (CNBC)
Who Will Buy All Those Trillions of US Treasury’s? (Hamilton)
A Major Misconception About The Market Exposed In One Chart (CNBC)
Spiking Mortgage Rates, High Home Prices, New Tax Law, the Housing Market (WS)
Existing US Home Sales In January See Biggest Drop In 3 Years (R.)
Homeownership Is Increasingly For The Wealthy (CNBC)
Dallas Fed President Kaplan Sounds Panic Over Level Of US Debt (ZH)
Trump Gov’t May Make It Easier To Wipe Out Student Debt In Bankruptcy (CNBC)
Top US Treasury Official Slams China’s ‘Non-Market Behavior’ (R.)
Extending Brexit Transition Period Would Cost UK Billions More (Ind.)
Give Antidepressants To A Million More Britons, Doctors Urged (Ind.)
Are Driving Bans Coming for German Cities? (Spiegel)
Three Months On And Still No Action From Government On Plastic Pollution (Ind.)

 

 

It’s the investors and reporters that live in sweet spots.

Bond Yields Moving From ‘Sweet Spot’ To Riskier Area (CNBC)

The 10-year Treasury yield is getting dangerously close to 3%, a level that some say will set off serious alarm bells for some stock investors. While the entire Treasury market is moving, the 10-year is the benchmark, the rate most widely watched by investors and the one tied to a whole range of business and consumer loans, including mortgages. On Wednesday, it rose to a fresh four-year high of 2.957%, and that helped turn a strong stock market rally after the Fed minutes into a bloodbath. The Dow closed down 166 points at 24,797. That puts the focus again on the bond market Thursday and the events that could impact trading. That would include an appearance by New York Fed President William Dudley on Thursday morning and a 7-year bond auction Thursday afternoon.

The 3% level does not necessarily have to stop the stock market’s bull run, but it is a level where the probability for losses in the S&P 500 increases, according to a new report from Bank of America Merrill Lynch. “You’re on the cusp of leaving the sweet spot, but that being said, the rising rates are not necessarily bad for the stock market. Yes, from your finance courses, a higher discount rate means you’re going to see lower valuations, all else being equal. But the ‘all else being equal’ missing ingredient is a high growth rate,” said Marc Pouey, equity and quant strategist at BofAML. Pouey said the “sweet spot” for stocks is a 10-year yield between 2 and 3%, but the fact that not only U.S. growth but global economic growth is strong makes it more likely that stocks will be able to positively navigate a zone where the 10-year is above 3%.

Read more …

These buyers don’t exist.

Who Will Buy All Those Trillions of US Treasury’s? (Hamilton)

As of the latest Treasury update showing federal debt as of Wednesday, February 15…federal debt (red line below) jumped by an additional $50 billion from the previous day to $20.76 trillion. This is an increase of $266 billion essentially since the most recent debt ceiling passage. Of course, this isn’t helping the debt to GDP ratio (blue line below) at 105%.

But here’s the problem. In order for the American economy to register growth, as measured by GDP (the annual change in total value of all goods produced and services provided in the US), that growth is now based solely upon the growth in federal debt. Without the federal deficit spending, the economy would be shrinking. The chart below shows the annual change in GDP minus the annual federal deficit incurred. Since 2008, the annual deficit spending has been far greater than the economic activity that deficit spending has produced. The net difference is shown below from 1950 through 2017…plus estimated through 2025 based on 2.5% average annual GDP growth and $1.2 trillion annual deficits. It is not a pretty picture and it isn’t getting better.

Even if we assume an average of 3.5% GDP growth (that the US will not have a recession(s) over a 15 year period) and “only” $1 trillion annual deficits from 2018 through 2025, the US still continues to move backward indefinitely.

The cumulative impact of all those deficits is shown in the chart below. Federal debt (red line) is at $20.8 trillion and the annual interest expense on that debt (blue line) is jumping, now over a half trillion. Also shown in the chart is the likely debt creation through 2025 and interest expense assuming a very modest 4% blended rate on all that debt. So, for America to appear as if it is moving forward, it has to go backward into greater debt?!? If you weren’t troubled so far, here is where the stuff starts to hit the fan.

Read more …

These guys can make themselves believe anything.

A Major Misconception About The Market Exposed In One Chart (CNBC)

There’s one chart that could cast doubt on an age-old market adage. As Treasury yields hover around multiyear highs with the 10-year inching toward the 3% mark, Oppenheimer technician Ari Wald says that history shows that rising rates are actually bullish for the market. A more common belief is that a rising rate environment bodes ill for stocks, but Wald says the technicals point to the opposite. “The key point for us is that the direction of interest rates is equally, if not more important, than the level of interest rates,” he said Tuesday on CNBC’s “Trading Nation.” “So in general, we’re of the view that low and rising tends to be bullish for stocks and high and [falling rates] is what’s bearish.”

On a chart of the 10-year yield and the S&P 500 going back to 2000, Wald points out that since then falling interest rates have actually coincided with a drop in the market. “If you look back through history, you’ll see that it was a downturn in interest rates that coincided with market tops in 2000 and 2007, as well as what we’ve been calling the top in risk in that 2014 to 2015 period,” he said. “So we see rising rates as growth coming back into the market.” As a result, Wald believes that if investors are looking to put money to work, cyclical sectors like financials look to be a good bet right now. He cautions against bond proxies like utilities, telecom and real estate investment trusts as he believes they are going to “get hammered” in the current environment.

Read more …

US housing approaches a bottleneck.

Spiking Mortgage Rates, High Home Prices, New Tax Law, the Housing Market (WS)

The average interest rate for 30-year fixed-rate mortgages with a 20% down-payment and with conforming loan balances ($453,100 or less) that qualify for backing by Fannie Mae and Freddie Mac rose to 4.64%, the highest since January 2014, according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey, released this morning. This chart shows the recent spike in mortgage rates, as reported by the MBA. There are two spikes actually: The spike off near-historic lows in the summer of 2016 (the absolute low was in late 2012) when the Fed stopped flip-flopping about rate hikes; and the spike when the subsequent rate hikes started belatedly driving up the 10-year Treasury yield late last year. It’s the 10-year yield that impacts mortgage rates. Note that, except for the brief mini-peak in 2013, the average mortgage rate would be the highest since April 2011:

The average interest rate for 30-year fixed-rate mortgages backed by the FHA with 20% down rose to 4.58%, the highest since April 2011, according to the MBA. And the average interest rate for 15-year fixed-rate mortgages with 20% down rose to 4.02%, also the highest since April 2011. This may be far from over: “What worries investors is that if inflation increases faster than expected, the Fed may be obliged to ‘slam on the brakes’ to keep the economy from overheating by raising interest rates faster than expected,” the MBA mused separately. Home prices have skyrocketed in many markets since those years of higher mortgage rates, such as 2011 and before. The S&P CoreLogic Case-Shiller National Home Price Index has surged 40% since April 2011:

That’s the national index, which papers over the big differences in individual markets, with prices lagging behind in some markets and soaring in others. For example, in the five-county San Francisco Bay Area, according to the CaseShiller Index, home prices have surged 80% since April 2011:

So with home prices surging for years and with mortgage rates now spiking, what gives? Today the National Association of Realtors reported that sales of existing homes fell 4.8% year-over-year in January – the “largest annual decline since August 2014,” it said – even as the median price rose 5.8% year-over-year to $240,000. I’m not sure if the new tax law, which removes some or all of the tax benefits of homeownership, has had an impact yet since it just went into effect. But the lean inventories and falling sales combined with rising prices tell a story of potential sellers not wanting to sell, and this could be exacerbated by the new tax law.

And they have a number of financial and tax reasons for not wanting to sell, including: • They’d lose some or all of the tax benefits that they still enjoy with their existing mortgages that have been grandfathered into the new law. • Given the higher mortgage rates that they would have to deal with on a new mortgage (which might exceed their existing rate by a good margin after repeated refinancing on the way down), and given the high prices of homes on the market, they might not be able to afford to move to an equivalent home, and thus cannot afford to sell.

Read more …

Now try and square this with that recovery story.

Existing US Home Sales In January See Biggest Drop In 3 Years (R.)

U.S. home sales unexpectedly fell in January, leading to the biggest year-on-year decline in more than three years, as a chronic shortage of houses lifted prices and kept first-time buyers out of the market. The supply squeeze and rising mortgage interest rates are stoking fears of a lackluster spring selling season. The second straight monthly drop in home sales reported by National Association of Realtors on Wednesday added to weak retail sales and industrial production in January in suggesting slower economic growth in the first quarter. “There may be some headwinds ahead for home resales with rising mortgage costs affecting how much the buyer can afford and this could put a damper on existing home sales and take some of the wind out of the economy’s sails,” said Chris Rupkey, chief economist at MUFG in New York.

Existing home sales dropped 3.2% to a seasonally adjusted annual rate of 5.38 million units last month, with purchases declining in all four regions. Economists polled by Reuters had forecast home sales rising 0.9% to a rate of 5.60 million units in January. Existing home sales, which account for about 90% of U.S. home sales, declined 4.8% on a year-on-year basis in January. That was the biggest year-on-year drop since August 2014. The weakness in home sales is largely a function of supply constraints rather than a lack of demand, which is being driven by a robust labor market. The shortage of properties is concentrated at the lower end of the market. While the number of previously-owned homes on the market rose 4.1% to 1.52 million units in January, housing inventory was down 9.5% from a year ago.

Read more …

Everything is.

Homeownership Is Increasingly For The Wealthy (CNBC)

The sharp drop in January home sales was not due to a shortage of homes for sale. It was due to a shortage of affordable homes for sale. While real estate economists continue to blame the pitiful 3.4-month supply of total listings (a six-month supply is considered a balanced market), a better indicator is a chart on the second-to-last page of the National Association of Realtors’ monthly sales report. It breaks down sales by price point. Sales of homes priced below $100,000 fell 13% in January year over year. Sales of homes priced between $100,000 and $250,000 dropped just more than 2%. The share of first-time buyers also declined to 29%, compared with 33% a year ago.

“Affordable inventory has been more depleted than expected and the upcoming spring homebuying season will likely be filled with bidding wars and multiple offers,” said Joe Kirchner, senior economist at Realtor.com. The biggest sales gains were in homes priced between $500,000 and $750,000, up nearly 12% annually. Apparently there are more of those homes for sale. That’s a problem, because higher price points are not where the bulk of buyers exist and especially not where most first-time buyers exist. If you look at sales distribution, about 55% of buyers are in the below $250,000 category. Just 13% are above $750,000. Unfortunately, the entry-level price point is not where most new-home builders exist either today, given the significantly higher costs of construction.

The median home price of a newly built home is around $335,000, according to the U.S. Census. The lower-price tier is, however, where investors exist. During the recession, when the supply of homes for sale was about four times what it is today, investors bought millions of properties, saving the housing market overall by putting a floor on tumbling home prices. Realtors say now is the time for those same investors to sell.

Read more …

“..when US debt doubled in the past decade the Fed had no problems, and in fact enabled it. And now, it’s time to panic…”

Dallas Fed President Kaplan Sounds Panic Over Level Of US Debt (ZH)

Nearly a decade after the US unleashed its biggest debt-issuance binge in history, doubling the US debt from $10 trillion to $20 trillion under president Obama, which was only made possible thanks to the Fed’s monetization of $4 trillion in deficits (and debt issuance), the Fed is starting to get nervous about the (un)sustainability of the US debt. The Federal Reserve should continue to raise U.S. interest rates this year in response to faster economic growth fueled by recent tax cuts as well as a stronger global economy, Dallas Federal Reserve Bank President Robert Kaplan said on Wednesday. “I believe the Federal Reserve should be gradually and patiently raising the federal funds rate during 2018,” Kaplan said in an essay updating his views on the economic and policy outlook.

“History suggests that if the Fed waits too long to remove accommodation at this stage in the economic cycle, excesses and imbalances begin to build, and the Fed ultimately has to play catch-up.” The Fed is widely expected to raise rates three times this year, starting next month. Kaplan, who does not vote on Fed policy this year but does participate in its regular rate-setting meetings, did not specify his preferred number of rate hikes for this year. But he warned Wednesday that falling behind the curve on rate hikes could make a recession more likely. [..] The most ironic warning, however, came when Kaplan predicted the US fiscal future beyond 2 years: he said that while the corporate tax cuts and other reforms may boost productivity and lift economic potential, most of the stimulative effects will fade in 2019 and 2020, leaving behind an economy with a higher debt burden than before.

“This projected increase in government debt to GDP comes at a point in the economic cycle when it would be preferable to be moderating the rate of debt growth at the government level,” Kaplan said. A higher debt burden will make it less likely the federal government will be able to deliver fiscal stimulus to offset any future economic downturn, he said, and unwinding it could slow economic growth. “While addressing this issue involves difficult political considerations and policy choices, the U.S. may need to more actively consider policy actions that would moderate the path of projected U.S. government debt growth,” he said. So to summarize: when US debt doubled in the past decade the Fed had no problems, and in fact enabled it. And now, it’s time to panic…

Read more …

Something’s in the air.

Trump Gov’t May Make It Easier To Wipe Out Student Debt In Bankruptcy (CNBC)

Student loan borrowers may finally have their day in court. The Education Department said Tuesday it would review when borrowers can discharge student loans, an indication it could become easier to expunge those loans in bankruptcy. The department said it is seeking public comment on how to evaluate undue hardship claims asserted by student loan borrowers to determine whether there is any need to modify how those claims in bankruptcy are evaluated. As of now, “it’s almost impossible to discharge student loans in bankruptcy,” said Mark Kantrowitz, a student loan expert. “The problem was undue hardship was never defined and the case law has never led to a standardized definition.”

Meanwhile, college-loan balances in the United States have jumped to an all-time high of $1.4 trillion, according to Experian. The average outstanding balance is $34,144, up 62% over the last 10 years. Roughly 4.6 million borrowers were in default as of Sept. 30, 2017, also up significantly from previous years. The national student loan default rate is now over 11%, according to Department of Education data. Student loans are considered in default if you fail to make a monthly payment for 270 days. Your loan becomes delinquent the first day after you miss a payment. “I’m encouraged that they are asking the question,” Kantrowitz said of the Department of Education’s request for comment, although “this doesn’t necessarily mean there will be any policy changes.” And even still, bankruptcy should only be considered as a very last resort, he added.

Read more …

“..what they’re doing is perpetuating a system that worked for their benefit but ended up costing jobs in most of the rest of the world..”

Top US Treasury Official Slams China’s ‘Non-Market Behavior’ (R.)

The U.S. Treasury’s top diplomat ramped up his criticisms of China’s economic policies on Wednesday, accusing Beijing of “patently non-market behavior” and saying that the United States needed stronger responses to counter it. David Malpass, Treasury’s undersecretary for international affairs, said at a forum in Washington that China should no longer be “congratulated” by the world for its progress and policies. “They went to Davos a year ago and said ‘We’re into trade,’ when in reality what they’re doing is perpetuating a system that worked for their benefit but ended up costing jobs in most of the rest of the world,” Malpass said, at the event hosted by the Jack Kemp Foundation.

He said market-oriented, democratic governments were awakening to the challenges posed by China’s economic system, including from its state-owned banks and export credit agencies. He reiterated his view that China had stopped liberalizing its economy and was actually reversing these trends. “One of the challenges for the world is that as China has grown and not moved toward market orientation, that means that the misallocation of capital actually increases,” Malpass said. “They’re choosing investments in non-market ways. That is suppressing world growth,” he added. China said that its state-owned enterprises operate on free-market principles and is battling within the WTO’s dispute settlement system to be recognized as a “market economy” — a designation that would weaken U.S. and EU trade defenses.

Read more …

Tightening the noose…

Extending Brexit Transition Period Would Cost UK Billions More (Ind.)

Britain’s Brexit divorce bill will soar by billions of pounds if it tries to extend the transition period beyond the date suggested by Brussels, EU officials have told The Independent. Sources near the EU’s negotiating team said the UK would inevitably have to pay more – with the bill agreed by Theresa May already as high as £39bn – if it wants more time to prepare for its final break from the bloc. It came after a British Government document opened the way for a transition that could go on longer than the EU’s proposed end-date of 31 December 2020, though Downing Street was adamant the period will still be around “two years”. The prospect of a higher divorce bill, charged at millions of pounds a day, is likely to anger Tory Brexiteers as Ms May’s Cabinet gathers at Chequers today to try and hammer out a joint negotiating position for a trade deal with the EU.

Many hardline Eurosceptics are already uncomfortable with the idea of following EU rules with no say in making them – which some MPs have compared to making the UK a “vassal state”. One EU official close to talks told The Independent the financial settlement would “of course” have to be renegotiated if the transition extended into the next budget period, while another added: “Britain will have to pay for any transition beyond 2020, probably annual payments with no rebate.” In a statement published yesterday the Government said that the “period’s duration should be determined simply by how long it will take to prepare and implement the new processes and new systems that will underpin the future partnership” and that while “the UK agrees this points to a period of around two years” it “wishes to discuss with the EU the assessment that supports its proposed end date”.

Read more …

Wonder who paid for the study.

Give Antidepressants To A Million More Britons, Doctors Urged (Ind.)

More people should be offered drugs when suffering from mental health problems, according to a new study which calls into question recent concerns about over prescription. Research from Oxford University, which was published in The Lancet, found that more than one million extra people would benefit from being prescribed drugs and criticised “ideological” reasons doctors use to avoid doing so. Data from 522 trials, involving 116,000 patients, found that every one of the 21 antidepressants used were better than a placebo. In general, newer antidepressants tended to be better tolerated due to fewer side effects, while the most effective drug in terms of reducing depressive symptoms was amitriptyline – a drug first discovered in the 1950s.

“Antidepressants are routinely used worldwide yet there remains considerable debate about their effectiveness and tolerability,” said John Ioannidis of Stanford University, who worked with a team of researchers led by Andrea Cipriani. Mr Cipriani said the findings offered “the best available evidence to inform and guide doctors and patients” and should reassure people with depression that drugs can help. “Antidepressants can be an effective tool to treat major depression, but this does not necessarily mean antidepressants should always be the first line of treatment,” he told a briefing in London. The study looks at average effects and therefore should not be interpreted as showing how drugs work for every patient.

Read more …

It’s clear where Der Spiegel stands: “Preparing for Chaos”, “Normal city life would be rendered impossible.”

Ironically, the bans may get support from the car industry, since many people and firms would need to buy new vehicles.

Are Driving Bans Coming for German Cities? (Spiegel)

Emissions standards passed by the European Union in 2010 are regularly exceeded, essentially robbing residents of clean air to breathe. They have not, however, stayed quiet. Three years ago, 30 local residents launched a crusade against the city, demanding that traffic-calming measures be implemented and, ultimately, suing the city for inaction. In response, all they got were assurances that the city was looking into it or excuses that they didn’t have enough staff to deal with the problem. “Nothing has happened,” Lill says. That could change on Thursday. The Federal Administrative Court in Leipzig is set to consider whether vague plans to maintain clean air go far enough or whether problematic cities like Hamburg must ensure clean air as rapidly as possible, even if that means implementing driving bans. And there is plenty to indicate that the judges will prioritize health, just as lower courts in Düsseldorf and Stuttgart have done.

The landmark decision could very well send out shock waves affecting more than 60 municipalities in which, like Hamburg, limits on poisonous nitrogen oxide emissions are consistently exceeded. Germany’s major carmakers would also be put on notice, as would the German Chancellery and the ministries responsible. All have ignored the problem for years and are hardly prepared should the court prove stubborn. Things threaten to get even worse after that: Just a few weeks after the Leipzig ruling, the European Commission is also set to decide whether to initiate legal proceedings against Germany at the European Court of Justice for its failure to do anything about high levels of harmful emissions in its cities. Should Brussels decide to do so, it would clearly expose Berlin’s cozy relationship with the automobile industry at the expense of public health. “That would be a real disgrace for the German government,” says a state secretary in Berlin.

[..] The German government is now facing the consequences of its inactivity — or at least it will if the court rejects the appeals from Stuttgart and Düsseldorf against driving bans. Depending on the grace period the court decides on, the cities could be forced to close down their streets within three to six months. A verdict of that nature would destroy billions in value because drivers would suddenly be unable to drive into the city for work or to go shopping. Cars that already have to be marked down significantly in many places could then only be sold in foreign countries. Millions of cars would be affected by the ban and there is a possibility that even delivery vehicles and trucks belonging to craftsmen would not be permitted. Normal city life would be rendered impossible.

Read more …

Did anyone actually believe they’d do something?

Three Months On And Still No Action From Government On Plastic Pollution (Ind.)

MPs have attacked a three-month delay since the Chancellor pledged to tackle the huge environmental damage from plastic pollution – protesting that no action has followed. In his November Budget, Philip Hammond vowed to investigate new charges to make the UK a “world leader in tackling the scourge of plastic littering our planet and our oceans”. “We cannot keep our promise to the next generation to build an economy fit for the future unless we ensure our planet has a future,” he told the Commons. But, three months later, the Treasury has failed to start a consultation on what action to take, or even explain which Government department will run it. The protest comes from the Commons Environmental Audit Committee, which has – in the meantime – recommended a 25p charge is levied on all drinks sold in disposable cups, which are lined with polyethylene.

Mary Creagh, the committee’s chairwoman, said: “Pollution from single use plastic packaging is choking our oceans and devastating marine wildlife. “Three months ago, ministers promised to look at using the tax system reduce the use of throwaway plastics, but still have not published a call for evidence. “The Government has talked the talk on plastics pollution, but it has been too slow to walk the walk.” In a stinging letter, sent to Mr Hammond and Michael Gove, the Environment Secretary, the committee demands to know when ministers will set out action to curb the “700,000 plastic bottles that are littered every day”. “These are just one example of single-use plastics that can end up in our seas and oceans, killing wildlife and breaking down into harmful microplastics,” Ms Creagh added.

Read more …

Feb 162018
 
 February 16, 2018  Posted by at 10:59 am Finance Tagged with: , , , , , , , , , , , ,  


Paul Gauguin Yellow haystacks (Golden harvest) 1889

 

US Market Gurus Who Predicted Selloff Say Current Calm An Illusion (R.)
There Will Be No Economic Boom (Roberts)
T-Bills Flood Set to Put Upward Pressure on Short-Term Funding Costs (BBG)
“Financial Stress” Spikes – Just As The Fed Intends (WS)
Hedge Fund King Dalio Bets Big Against Europe (BBG)
Everybody’s Already Invested, So Who’s The Buyer? (ZH)
Donald Trump’s Dangerous Currency Game (Spiegel)
US Dollar Spirals Down, Hits Lowest Point Since 2014 (WS)
Home Ownership Among Britain’s Young Adults Has ‘Collapsed’ (G.)
Warren Buffett, Prime Example Of The Failure Of American Capitalism (Dayen)
Monopolies Game the System (Nation)
Greece Warns Turkey Of Non-Peaceful Response Next Time (K.)
Borneo Has Lost Half Its Orangutans This Century (Ind.)

 

 

Short is hip again.

US Market Gurus Who Predicted Selloff Say Current Calm An Illusion (R.)

You ain’t seen nothing yet. Some veteran investors who were vindicated in calling for a pullback in shares and a spike in volatility could now be cheering. Actually, they’re looking at the risks that still lie ahead in the current relative calm. The last week’s wild market swings confirmed that the market was in correction territory – falling more than 10% from its high. The falls were triggered by higher bond yields and fears of inflation but came against a backdrop of a stretched market that had taken price/earnings levels to as high as 18.9. Adding to downwards pressure was the unwinding of bets that volatility would stay low. The fall had come after a growing number of strategists and investors said a pullback was in the offing – although the consensus opinion was that the market would then start rising again. The big question is: what comes now?

“Do you honestly believe today is the bottom?” said Jeffrey Gundlach, known as Wall Street’s Bond King, last week, who had been warning for more than a year that markets were too calm. Gundlach had been particularly vocal in his warnings about the VIX, Wall Street’s “fear gauge,” which tracks the volatility implied by options on the S&P 500. The sell-off in U.S. stocks derailed some popular short volatility exchange-traded products, which contributed to more downwards pressure on the market. Gundlach in May last year warned that the VIX was “insanely low.” Hedge fund manager Douglas Kass was short SPDR S&P 500 ETF and said he “took a lot of small losses” last year but says he still sees more stress ahead. He said he is now re-shorting that ETF. Investors who bet low volatility would continue will need time to unwind their strategies, Kass said.

[..] Veteran short-seller Bill Fleckenstein, who ran a short fund but closed it in 2009, said that “last week’s action was an early indication that the end of bull market is upon us.” Fleckenstein said there was a lot of money in the market with no conviction behind it, for example, buying index funds and ETFs just “to be part of the party” which was an element of “hot money.” “Last week was just the preview to the bigger event that we’ll see this year probably,” Fleckenstein said. Fleckenstein said he is not short at the moment – although he did make “a couple of bucks” last week shorting Nasdaq futures. He said he is looking for an opportunity to get short again. He said he has “flirted with the idea of restarting a short fund”.

Read more …

The US is betting big. But don’t let that blind you to the fact that so is everyone else.

There Will Be No Economic Boom (Roberts)

Last week, Congress passed a 2-year “continuing resolution, or C.R.,” to keep the Government funded through the 2018 elections. While “fiscal conservatism” was just placed on the sacrificial alter to satisfy the “Re-election” Gods,” the bigger issue is the impact to the economy and, ultimately, the financial markets. The passage of the $400 billion C.R. has an impact that few people understand. When a C.R. is passed it keeps Government spending at the same previous baseline PLUS an 8% increase. The recent C.R. just added $200 billion per year to that baseline. This means over the next decade, the C.R. will add $2 Trillion in spending to the Federal budget. Then add to that any other spending approved such as the proposed $200 billion for an infrastructure spending bill, money for DACA/Immigration reform, or a whole host of other social welfare programs that will require additional funding.

But that is only half the problem. The recent passage of tax reform will trim roughly $2 Trillion from revenues over the next decade as well. This is easy math. Cut $2 trillion in revenue, add $2 trillion in spending, and you create a $4 trillion dollar gap in the budget. Of course, that is $4 Trillion in addition to the current run rate in spending which continues the current acceleration of the “debt problem.”

But it gets worse. As Oxford Economics reported via Zerohedge: “The tax cuts passed late last year, combined with the spending bill Congress passed last week, will push deficits sharply higher. Furthermore, Trump’s own budget anticipates that US debt will hit $30 trillion by 2028: an increase of $10 trillion.” Oxford is right. In order to “pay for” all of the proposed spending, at a time when the government will receive less revenue in the form of tax collections, the difference will be funded through debt issuance.

Simon Black recently penned an interesting note on this: “Less than two weeks ago, the United States Department of Treasury very quietly released its own internal projections for the federal government’s budget deficits over the next several years. And the numbers are pretty gruesome. In order to plug the gaps from its soaring deficits, the Treasury Department expects to borrow nearly $1 trillion this fiscal year. Then nearly $1.1 trillion next fiscal year. And up to $1.3 trillion the year after that. This means that the national debt will exceed $25 trillion by September 30, 2020.”

Of course, “fiscal responsibility” left Washington a long time ago, so, what’s another $10 Trillion at this point? While this issue is not lost on a vast majority of Americans that “choose” to pay attention, it has been quickly dismissed by much of the mainstream media, and Congressman running for re-election, by suggesting tax reform will significantly boost economic growth over the next decade. The general statement has been: “By passing much-needed tax reform, we will finally unleash the economic growth engine which will more than pay for these tax cuts in the future.”

Read more …

Nobody expects the bond vigilantes?!

T-Bills Flood Set to Put Upward Pressure on Short-Term Funding Costs (BBG)

Get ready for the deluge of Treasury bills, and the increase in short-term funding costs that’s likely to accompany it. Investors are bracing for an onslaught of T-bill supply following last week’s U.S. debt ceiling suspension. That’s already prompting them to demand higher rates from borrowers across money markets. And that’s just a result of the government replenishing its cash hoard to normal levels. The ballooning budget deficit means there’s even more to come later, and that deluge of supply could further buoy funding costs down the line, making life more expensive both for the government and companies that borrow in the short-term market. Concerns about the U.S. borrowing cap had forced the Treasury to trim the total amount of bills it had outstanding, but that’s no longer a problem and the government is now busy ramping up issuance.

Financing estimates from January show that the Treasury expects to issue $441 billion in net marketable debt in the current quarter and the bulk of that is likely to be in the short-term market. “Supply will come in waves and we’re in a very heavy wave right now,” said Mark Cabana at Bank of America. “If you take Treasury at their word that they want to issue $300 billion in bills, that’s a lot of net supply that needs to come to market.” Next week’s three- and six-month bill auctions will be the largest on record at $51 billion and $45 billion respectively, Treasury said Thursday. The four-week auction will be boosted to $55 billion next week, having already been lifted to $50 billion for the Feb. 13 sale. Auction volume at the tenor had earlier been shrunk to just $15 billion.

Read more …

Spikes but is still negative. Wait till that changes.

“Financial Stress” Spikes – Just As The Fed Intends (WS)

The weekly St. Louis Fed Financial Stress index, released today, just spiked beautifully. It had been at historic lows back in November, an expression of ultra-loose financial conditions in the US economy, dominated by risk-blind investors chasing any kind of yield with a passion, which resulted in minuscule risk premiums for investors and ultra-low borrowing costs even for even junk-rated borrows. The index ticked since then, but in the latest week, ended February 9, something happened. The index, which is made up of 18 components (seven interest rate measures, six yield spreads, and five other indices) had hit a historic low of -1.6 on November 3, 2017, even as the Fed had been raising its target range for the federal funds rate and had started the QE Unwind. It began ticking up late last year, hit -1.35 a week ago, and now spiked to -1.06.

The chart above shows the spike of the latest week in relationship to the two-year Oil Bust that saw credit freeze up for junk-rated energy companies, with the average yield of CCC-or-below-rated junk bonds soaring to over 20%. Given the size of oil-and-gas sector debt, energy credits had a large impact on the overall average. The chart also compares today’s spike to the “Taper Tantrum” in the bond market in 2014 after the Fed suggested that it might actually taper “QE Infinity,” as it had come to be called, out of existence. This caused yields and risk premiums to spike, as shown by the Financial Stress index. This time, it’s the other way around: The Fed has been raising rates like clockwork, and its QE Unwind is accelerating, but for months markets blithely ignored it. Until suddenly they didn’t.

This reaction is visible in the 10-year Treasury yield, which had been declining for much of last year, despite the Fed’s rate hikes, only to surge late in the year and so far this year. It’s also visible in the stock market, which suddenly experienced a dramatic bout of volatility and a breathless drop from record highs. And it is now visible in other measures, including junk-bond yields that suddenly began surging from historic low levels. The chart of the ICE BofAML US High Yield BB Effective Yield Index, via the St. Louis Fed, shows how the average yield of BB-rated junk bonds surged from around 4.05% last September to 4.98% now, the highest since November 20, 2016:

But a longer-term chart shows just how low the BB-yield still is compared to where it had been in the years after the Financial Crisis, and how much more of a trajectory it might have ahead:

The Financial Stress Index is designed to show a level of zero for “normal” financial conditions. When these conditions are easy and when there is less financial stress than normal, the index is negative. The index turns positive when financial conditions are tighter than normal. But at -1.06, it remains below zero. In other words, financial conditions remain extraordinarily easy. This is clear in a long-term chart of the index that barely shows the recent spike, given the magnitude of prior moves. This is precisely what the Fed wants to accomplish.

Read more …

Feels a bit like Soros vs Britain in 1992.

Hedge Fund King Dalio Bets Big Against Europe (BBG)

Ray Dalio, billionaire philosopher-king of the world’s biggest hedge fund, has a checklist to identify the best time to sell stocks: a strong economy, close to full employment and rising interest rates. That may explain why the firm he created, Bridgewater Associates, has caused a to-do the past two weeks by quickly amassing an $21.65 billion bet against Europe’s biggest companies. The firm’s total asset pool is $150 billion, according to its website. Economic conditions in Europe appear to fit Dalio’s requirements. Last year, the continent’s economy grew at the fastest pace in a decade, and ECB President Mario Draghi has indicated he’s on a slow path toward boosting rates as economic slack narrows. Factories around the world are finding it increasingly hard to keep up with demand, potentially forcing them to raise prices.

But Dalio is leading his firm down a path that few other funds care to tread. Renaissance Technologies, most recently famous for its association with Breitbart donor Robert Mercer, is only $42 million short in Europe. Two Sigma Investments is betting even less than that. Kenneth Griffin’s Citadel has less than $2 billion in European company shorts. So Dalio will rise or fall virtually on his own. “It is not unusual to see strong economies accompanied by falling stock and other asset prices, which is curious to people who wonder why stocks go down when the economy is strong and don’t understand how this dynamic works,” Dalio wrote in a LinkedIn post this week. Bridgewater’s shorting spree started last fall in Italy. With the country’s big banks accumulating billions in bad debt, Bridgewater mounted a $770 million wager against Italian financial stocks.

Saddled with non-performing loans and under constant regulatory scrutiny, they made for a juicy target. Throughout the fall and into winter the bet against Italy represented the majority of Bridgewater’s publicly disclosed short positions. The initial bet was eventually raised to encompass 18 firms and nearly $3 billion. Bridgewater had flipped its portfolio in January to turn bearish on Western Europe stocks and also started shorting Japanese equities, according to a person with knowledge of the matter. The hedge fund significantly raised its long U.S. equities exposure last month, the person added.

Read more …

“This market is nuts.”

Everybody’s Already Invested, So Who’s The Buyer? (ZH)

With stocks erasing their early-day losses and the VIX tumbling once again, CNBC – the go-to resource for retirees and other retail investors – was back to reassuring investors that this month’s explosion of volatility was just another dip deserving to be bought. But Embark Capital CIO Peter Toogood offered an important counterpoint during an appearance this morning where he warned his audience against exactly this kind of credulousness by ignoring the fundamental growth global growth story that seemingly every other portfolio manager has been relying on and instead pointing to one simple fact: “Everybody is already invested”.

But even with positioning stretched to such an exaggerated degree, that doesn’t necessarily mean a crash is right around the corner. Instead, Toogood foresees a “step bear market” that will continue until the PPT, newly reconstituted under the leadership of Jerome Powell, realizes that they must once again intervene…because with so much systemic debt and myriad other risks – like the dangerously underfunded pensions that we’ve highlighted again and again – a sustained selloff would be far too risky to countenance. “I noticed Dudley the other day say ‘this is small potatoes’ and warning investors not to worry about it. And I would accept that’s all true, if everybody wasn’t already invested. And I want to know who the marginal buyer of this story is. Everyone is in. Look at consumer sentiment surveys, loo at professional money managers, everyone is in. So who’s the buyer? It’s very 2007-2008.”

He added that hedge fund managers are now “sitting around scratching their heads” because even European high yield bonds – the debt of some of the worst companies on Earth – are yielding a staggeringly low 2%. Toogood also pointed out that stocks are breaking through important technical levels… “You’re breaking some very major levels in most markets outside of the US still, and that is very, very significant. That is the test of where you’d think a bear market is coming; I still do, just on valuation alone. I think this market is nuts,” Toogood said. Which is leaving asset managers in a bind… “It’s one of those extremely unpleasant moments when people need income but income is expensive and that’s the other problem we see … We are forced into high yield (bonds) and we don’t want to be there,” Toogood said.’

Read more …

“..our currency, but your problem..”

Donald Trump’s Dangerous Currency Game (Spiegel)

“There is no longer any doubt that the U.S. government is not only waging a currency war, but is also in the process of winning it,” Joachim Fels, chief economist at Pimco, says. Trump’s policies represent a threat to Europe’s recovery, a situation that has displeased the ECB. But there isn’t much the ECB can do about it. By pursuing economic policies that ignore the needs of America’s trading partners – an approach economists refer to as “beggar-thy-neighbor” – Trump has revisited an old American tradition. In the early 1970s, it was Treasury Secretary John Connally who raised the prospect of a budget deficit of $40 billion – a massive sum at the time – and justified it as “fiscal stimulus.” In response to concerns voiced by his European counterparts, worried as they were about the weak dollar, he responded with his legendary line that the dollar “is our currency, but your problem.”

Lloyd Bentsen, treasury secretary under Bill Clinton, informed the Japanese in 1993 that he urgently desired a stronger yen in order to stem the Asian trading partner’s high export surpluses. With “America First,” Trump has now elevated “beggar thy neighbor” to the status of administration doctrine. The first part of Trump’s economic policy agenda envisions stimulating the economy through tax cuts and public infrastructure investments. That would help American companies, and the rest of the world could also profit initially if the U.S. economy were to grow more rapidly and companies in Europe or Asia were to receive more orders. But it’s the second part of the Trump program that reveals the real strategic thrust.

During the same weak that the treasury secretary could be heard preaching the virtues of a weak dollar, the U.S. government imposed steep import tariffs on washing machines and solar cells. The combination of a weak dollar and protectionist measures are aimed at creating a competitive advantage for American companies versus their competitors from around the world. “The government clearly wants a weak dollar right now because inflation is moderate and a weaker dollar will make it easier for the manufacturing sector to grow,” says Barry Eichengreen, a professor for economics at the University of California at Berkeley.

Read more …

Europe will have to act. Simple as that.

US Dollar Spirals Down, Hits Lowest Point Since 2014 (WS)

The US dollar has dropped 2.0% in the past five days, 2.4% over the past month, 4.1% year-to-date, 5.3% over the past three months, and 9.4 % over the past 12 months, according to the WSJ Dollar Index. At 82.47, the index is at the lowest level since December 25, 2014: The index weighs the US dollar against a basket of 16 other currencies that account for about 80% of the global currency trading volume: Euro, Japanese Yen, Chinese Yuan, British Pound, Canadian Dollar, Mexican Peso, Australian Dollar, New Zealand Dollar, Hong Kong Dollar, South Korean Won, Swiss Franc, Swedish Krona, Singapore Dollar, Indian Rupee, Turkish Lira, and Russian Ruble. The currencies are weighted based on their foreign exchange trading volume.

Whatever the reasons may be for the decline of the dollar against this basket of currencies — everyone has their own theory, ranging from the much prophesied death of the dollar to Treasury Secretary Steve Mnuchin’s actively dissing the dollar at every opportunity he gets — one thing we know: The decline started in late December 2016, after the index had peaked at 93.50. And it has not abated since. With the index currently at 82.47, it has fallen nearly 12% over those 14 months. The dominant factor in the decline of the dollar index is the strength of the euro, the second largest currency. Over those 14 months, the euro, which had been given up for dead not too long ago, has surged 20% against the dollar. The decline of the dollar is another indication that markets have blown off the Fed, similar to the 10-year Treasury yield falling for much of last year, even as the Fed was raising its target range for the federal funds rate.

The Fed keeps an eye on the dollar. A weak dollar makes imports more expensive and, given the huge trade deficit of the US, adds to inflationary pressures in the US. Over the past few years, the Fed has practically been begging for more inflation. So for the Fed, which is chomping at the bit to raise rates further, the weak dollar is a welcome sight. Conversely, a surging dollar would worry the Fed. At some point it would get nervous and chime in with the chorus emanating from the Treasury Department and the White House trying to talk down the dollar. If the dollar were to surge past certain levels, and jawboning isn’t enough to knock it down, the Fed might alter its monetary policies and might back off its rate-hike strategies or it might slow down the QE Unwind.

Read more …

“For 25- to 34-year-olds earning between £22,200 and £30,600 per year, home ownership fell to just 27% in 2016 from 65% two decades ago Good luck trying to find buyers.

Home Ownership Among Britain’s Young Adults Has ‘Collapsed’ (G.)

The chances of a young adult on a middle income owning a home have more than halved in the past two decades. New research from the Institute for Fiscal Studies shows how an explosion in house prices above income growth has increasingly robbed the younger generation of the ability to buy their own home. For 25- to 34-year-olds earning between £22,200 and £30,600 per year, home ownership fell to just 27% in 2016 from 65% two decades ago. Middle income young adults born in the late 1980s are now no more likely than those lower down the pay scale to own their own home. Those born in the 1970s were almost as likely as their peers on higher wages to have bought their own home during young adulthood.

Andrew Hood, a senior research economist at the IFS, said: “Home ownership among young adults has collapsed over the past 20 years, particularly for those on middle incomes.” The IFS said young adults from wealthy backgrounds are now significantly more likely than others to own their own home. Between 2014 and 2017 roughly 30% of 25- to 34-year-olds whose parents were in lower-skilled jobs such as delivery drivers or sales assistants owned their own home, versus 43% for the children of those in higher-skilled jobs such as lawyers and teachers. The study shows the growing disparities between rich and poor, as well as young and old, across the country. It also illustrates the drop in home ownership over the past decade. While those on middle incomes have seen the largest fall in ownership rates, those in the top income bracket have been least affected.

Read more …

Who needs capitalism when you can worship the golden calf?

Long article in a new series at the Nation.

Warren Buffett, Prime Example Of The Failure Of American Capitalism (Dayen)

Warren Buffett should not be celebrated as an avatar of American capitalism; he should be decried as a prime example of its failure, a false prophet leading the nation toward more monopoly and inequality. You probably didn’t realize that the same avuncular billionaire controls such diverse companies and products as See’s Candies, Duracell batteries, Justin Boots, Benjamin Moore Paints, and World Book encyclopedias. But Buffett has transformed Berkshire Hathaway, initially a relatively small textile manufacturer, into the world’s largest non-technology company by market value. Berkshire Hathaway owns over 60 different brands outright. And through Berkshire, Buffett also invests in scores of public corporations. The conglomerate closed 2016 with over $620 billion in assets.

The money mainly comes from Berkshire’s massive insurance business, composed of the auto insurer GEICO, the global underwriter General Reinsurance Corporation, and 10 other subsidiaries. Insurance premiums don’t get immediately paid out in claims; while the cash sits, Buffett can invest it. This is known as “float,” and Berkshire Hathaway’s float has ballooned from $39 million in 1970 to approximately $113 billion as of last September. It’s a huge advantage over rival investors—effectively the world’s largest interest-free loan, helping to finance Buffett’s pursuit of monopoly. “[W]e enjoy the use of free money—and, better yet, get paid for holding it,” Buffett said in his most recent investor letter. Indeed, as a 2017 Fortune article noted, with almost $100 billion in cash at the end of that year’s second fiscal quarter, Buffett’s Berkshire Hathaway literally has more money than it knows what to do with.

The dominant narrative around Buffett is that he invests in big, blue-chip companies whose products he enjoys, like Coca-Cola or Heinz ketchup. But Buffett’s taste for junk food cannot match his hunger for monopoly, and he scours the investment landscape to satisfy it.

Read more …

Monopoly contradicts capitalism. Well, in theory, that is.

Monopolies Game the System (Nation)

More than a century ago, Elizabeth Magie developed two sets of rules for a board game that would become known as Monopoly. There’s the one we know today: You play an aspiring real-estate tycoon, buying up properties to extract ever-larger sums from your opponents; you win when everyone else is destitute. But in Magie’s version, players could agree to switch midgame to a second rule book. Instead of paying rent to a landowner, they’d send funds to a common pot. The game would be over when the poorest player doubled their capital. Magie’s goal was to show the cruelty of monopoly power and the moral superiority of progressive taxation. Her board game was a rebuke to the slumlords and corporate giants of the Gilded Age.

Today, a few corporations once again dominate sectors of our economy. In an interview with The Nation’s George Zornick, Senator Elizabeth Warren points out that two companies sell 70% of the beer in the country; four companies produce 85% of American beef; and four airlines account for 80% of domestic seats. With monopolies squeezing out the competition and underpaying workers, profits are funneled to a tiny elite. It’s no coincidence that the three richest Americans—Amazon’s Jeff Bezos, Microsoft’s Bill Gates, and Berkshire Hathaway’s Warren Buffett—are together worth slightly more than the bottom half of the entire US population.

Just as railroad monopolies once controlled the crucial infrastructure of 19th-century commerce, tech companies are trying to own the infrastructure of the 21st. As Stacy Mitchell explains in “The Empire of Everything,” Amazon is not only the leading retail platform, but it has developed a vast distribution network to handle package delivery. Amazon announced in February that it would begin testing its own delivery service, which could soon rival UPS and FedEx. It also runs more than a third of the world’s cloud-computing capacity, handling data for the likes of Netflix, Nordstrom, and The Nation. Unlike past monopolies, however, Amazon doesn’t want to dictate to the market; it seeks to replace the market entirely.

Under these conditions, small businesses and start-ups are struggling to compete. In 2017, there were approximately 7,000 store closings—more than triple the number in the prior year. And the percentage of companies in the United States that are new businesses has dropped by nearly half since 1978. In many industries, starting a new business is like playing Monopoly when all the squares have already been purchased: Everywhere you land, there’s a monopolist making demands, everything from fees to sell items on its website to the release of data with which to undercut you later.

Read more …

EU and US better act. Greece will start shooting soon. They have a formidable army.

Greece Warns Turkey Of Non-Peaceful Response Next Time (K.)

Athens toughened up its stance on Turkish action in the eastern Aegean, with the foreign minister and the government spokesman making it clear to Ankara that Greece’s response to another incident will not be peaceful. Foreign Minister Nikos Kotzias said in an interview on Alpha TV late on Thursday that the incident on Monday, when a Turkish vessel rammed a Greek one off Imia island, “touched on the red line and in some sense it overstepped it.” He went on to add that there will not be another such peaceful behavior by the Greek side should such an incident recur.

Kotzias also clarified that “Imia is Greek” and warned Ankara “you should not open a gray-zone issue, because if we do, based on international law, not only are you wrong but you will also incur losses.” Government spokesman Dimitris Tzanakopoulos echoed Kotzias on Friday morning, warning that aggression will be met with an equal response. “If there is another act of Turkish aggression on Greek territory, there will be a response and there is no other way for us,” he told Skai TV. Greece’s verbal toughening comes as the Turkish armed forces conducted an extensive war game near the Greek-Turkish land border by Evros river in Thrace, including the scenario of crossing a river to invade a neighboring country.

Read more …

Words cannot express the sadness. Once we’ve eradicated the man of the woods, man is next.

Borneo Has Lost Half Its Orangutans This Century (Ind.)

Borneo has lost more than 100,000 orangutans in the space of just 16 years as a result of hunting and habitat loss, according to a new report. Logging, mining, oil palm, paper, and linked deforestation have been blamed for the the diminishing numbers. However, researchers also found many orangutans have vanished from more intact, forested regions, suggesting that hunting and other direct conflict between orangutans and humans continues to be a chief threat to the species. The report published in the Current Biology Journal found more than 100,000 of the island’s orangutans vanished in the period of 1999 to 2015. “Orangutans are disappearing at an alarming rate,” said Emma Keller, agricultural commodities manager at the Worldwide Fund for Nature (WWF).

“Their forests homes have been lost and degraded, and hunting threatens the existence of this magnificent great ape. “Immediate action is needed to reform industries that have pushed orangutans to the brink of extinction. UK consumers can make a difference through only supporting brands and retailers that buy sustainable palm oil.” Around half of the orangutans living on the island of Borneo, the largest island in Asia, were lost as a result of changes in land cover. [..] The report comes after an orangutan was shot at least 130 times with an air gun before it died earlier in the month, according to police in Borneo.

Read more …

Feb 112018
 
 February 11, 2018  Posted by at 11:23 am Finance Tagged with: , , , , , , , , , ,  


Vincent van Gogh Peach trees in blossom 1888

 

What Crushed Stocks? (WS)
Test Of Nerve For Markets As 10 Years Of Cheap Money Come To An End (G.)
Market Tests Millennial Traders Who’ve Never Seen A Crash (BBG)
Bond-Stock Clash Has Just Begun as Inflation Looms (BBG)
IMF Chief Lagarde Says Market Swings Aren’t Worrying (R.)
UK Labour Vows Renationalisation Of Water, Energy And Rail (G.)
Australia’s Big Banks Focus On Job Cuts As Inquiry Looms (R.)
Treating Mental Illness Could Save Global Economy Billions (CNBC)
Pain Pill Giant Purdue to Stop Promotion of Opioids to Doctors (BBG)
Asylum Seekers In UK Living In ‘Disgraceful, Unsafe’ Housing (G.)
Russia Might Sell S-400 Systems To US If Americans Feel Insecure (RT)
Oxfam Staff Partied With Prostitutes In Chad, Haiti, (G.)
Maclean’s Is Asking Men To Pay 26% More For Latest Issue (Maclean’s)
US Professor Fired After Telling Student ‘Australia Isn’t A Country’ (RT)

 

 

Bond markets are 10x stock markets?!

What Crushed Stocks? (WS)

On Friday at around 1:40 p.m., during whiplash-inducing market moves, the S&P 500 index was down 1.9%, bringing the total loss for the week to 8.3%, which would have been the biggest weekly loss since November 2008, after the Lehman bankruptcy. But dip-buyers jumped in courageously and saved the day. The S&P 500 ended up 1.5%, bringing to the total loss for the week to 5.2%, the worst week since, well, the selloff in January 2016. Everyone has their own reasons why stocks plunged last week. Some blamed algorithmic trading. Others blamed the short-volatility financial complex that blew up.

More specifically, Jim Cramer blamed “a group of complete morons” who traded in this space. Others blamed the stratospheric valuations of stocks that had been rallying for eight years with only a few dimples in between, and it’s simply time to unwind some of those gains. Whatever the factors might have been, rising bond yields certainly had something to do with it. They tend to hit stocks, eventually. Last week, prices of short-dated Treasuries edged down and prices of long-dated Treasuries edged down, and their yields edged up, but there was some turmoil in the middle, with some interesting consequences.The three-month Treasury yield rose to 1.55% on Friday, the highest since September 11, 2008. Investors are beginning to price in a rate hike in March:

But the two-year yield, after having surged to 2.16% on February 1, got very nervous, dropping and bouncing during the week, and fell sharply on Friday, ending the week at 2.05%:

The 10-year yield closed on Friday at 2.83% and in late trading went on to 2.85%. The interesting thing about this is the difference (the “spread”) between the two-year yield and the 10-year yield. It surged. This spread is one of the indications of the slope of the yield curve and was one of the most watched bond-data points during the scare last year over an “inverted” yield curve. This is a phenomenon where the two-year yield would be higher than the 10-year yield. The last time this happened was before the Financial Crisis. By early January, the spread between the two-year yield and the 10-year yield had dropped as low as 50 basis points (0.5 percentage points), the lowest since October 2007. As the two-year yield kept spiking, the 10-year yield had started rising, but not fast enough. All this has changed, and the 10-year yield has been rising faster than the two-year yield and the spread has widened to 78 basis points on Friday:

The 30-year yield rose to 3.14% on Friday. For the first time, it is now back where it had been on December 14, 2016, when the Fed stopped flip-flopping and started getting serious about raising its target range for the federal funds rate. The market responded to each rate hike with increases in short-term yields but defied the Fed on longer-term yields, which fell until September 2017. So what happened last week was that the two-year yield fell, while the yields of most longer maturities stayed put or rose, steepening the yield curve from the two-year yield on up.

The chart below shows the “yield curves” as they occurred on these four dates: • Yields on Friday, February 9, 2018 (red line) • Yields on December 29, 2017 (black line) • Yields on August 29, 2017 (green line) two weeks before the QE unwind was detailed. • Yields on December 14, 2016 (blue line) when the Fed stopped flip-flopping, raised its rates, and became a clockwork. Note how the spread has widened at the longer-dated ends between the black line (December 29, 2017) and the red line (Friday), and how the slope of the red line has steepened, with the 30-year yield surging 40 basis points over those six weeks. That’s a big move:

Read more …

The cheap money has BEEN the entire market.

Test Of Nerve For Markets As 10 Years Of Cheap Money Come To An End (G.)

Stock markets are heading for a wild ride this year as central bankers strap on their bullet-proof vests and test investors’ willingness to accept higher interest rates. Last week’s share price crashes, which in two days wiped $4 trillion off the value of markets around the world, was just a foretaste of the battle to come. In the days following Monday’s crash, share values have recovered strongly only to dive again as competing theories about the path of interest rates and the likely impact on economic growth fight for attention. Most investors want the era of cheap borrowing to continue and many are willing to sell their shareholdings if it looks like coming to an end. Without low interest rates, they cannot borrow and invest cheaply, especially in the assets that for the past decade have gone up every year by much more than their salary – property and shares.

Countless businesses have also come to rely on low borrowing costs to keep going, and investors fear they might go bust should their bank raise loan rates. Weaning companies and investors off their addiction was never going to be easy, even 10 years after central banks first put their stimulus packages in place, and despite warnings that these measures need to end. For some time, the US Federal Reserve has taken on the role of the advance guard, forging a path towards higher rates for others to follow. But its campaign got off to a faltering start. Back in 2013 it was forced to retreat when it signalled in the mildest terms that it would begin withdrawing its quantitative easing programme. The main effect of QE was to drive down long-term interest rates, allowing investors to borrow cheaply not just over one or five years, but for 30 years.

And so its withdrawal was as much of a blow for some fund managers as an immediate rate rise. Wall Street and markets in Europe and Asia, where heavy selling turned into a rout, forced Fed officials to retreat. The Fed adopted a more incremental approach. It gave markets more warning and spaced out the policy decisions. As it entered 2017, US interest rates had trebled, but only from 0.25% to 0.75%. Yet the economy was booming more than ever. The Fed appeared ready to get tougher, and with justification, according to Karen Ward at JP Morgan Asset Management. After the heavy lifting needed to get the industrialised world back from bankruptcy, she said, “economies are now rested”. Ward, who until recently was an adviser to the chancellor, Philip Hammond, said: “Households and businesses are feeling better about the future. They do not need a boost in quite the same way. Central banks can ease off the accelerator without troubling either growth or markets.”

Read more …

The problem is not that they’ve never seen a crash, the problem is they’ve never seen a functioning market.

Market Tests Millennial Traders Who’ve Never Seen A Crash (BBG)

In his career in finance—all seven years of it—Ben Kumar has seen some tough days. There was 2013, when traders worried about the Federal Reserve, and 2016, with the Brexit vote. But, at 29, Kumar and many millennials like him on Wall Street and the City of London have never endured a full-blown crash. For them, markets have always bounced back—fast—and gone on to heights. Now, with world stocks sinking and central banks withdrawing stimulus that’s supported markets for years, elders worry Kumar’s generation isn’t ready for its trial. Kumar is chill. “Find me someone who worked in the era of 15% inflation and I’ll talk to them about Bitcoin and the Internet,” said the 29-year-old, a fund manager at Seven Investment Management in London .

After $3 trillion was erased from global stocks in a week, he’s weighing whether to buy on the dip now—or wait a bit longer. “I don’t even think that this move is a wake-up call,” he said on Tuesday. Many bankers older than 40 shudder at the thought of what will happen if – or when – some unforeseen trigger sparks a crash that drags down not just stocks, but also bonds and currencies together. Etched in their memories is the Lehman Brothers collapse in 2008. In its wake, stock market valuations alone were cut in half. By contrast, most millennial investors have only worked in an era where central banks printed trillions of dollars to prop up their economies and markets. Since starting their careers, average interest rates in the developed world have barely nudged above 1%, inflation all but vanished, the S&P 500 Index more than doubled and bonds rallied so high that more than $7 trillion of debt is negative yielding.

“You have to have had that stage where you’re looking at the screen through your fingers to really appreciate risk-reward in this industry,” said Paul McNamara at GAM in London. “Not just seeing things go wrong, but going so much more wrong than you imagined was possible.”

Read more …

Why own stocks when bond yields rise? Still, inflation is a ludicrous fear.

Bond-Stock Clash Has Just Begun as Inflation Looms (BBG)

The tug-of-war between stocks and bonds is at the heart of the shakeout roiling financial markets. This week’s U.S. inflation report could hold the key to the next phase. Seemingly every time 10-year Treasury yields approached a four-year high last week, equities investors panicked, fearing the specter of higher inflation and a more aggressive pace of Federal Reserve rate hikes. Whether you want to say Treasuries are in a bear market or not, the surge in yields to start 2018 has left investors reassessing the value of equities and corporate bonds. Profits were easy when the 10-year yield traded in its narrowest range in a half-century, inflation stayed subdued and volatility across financial markets plumbed record lows. Gains are harder when low rates, a linchpin of the post-crisis recovery, start to disappear.

“What’s happening now is just price discovery between bonds and equities – how far can the bond market push yields up before the equity market cracks?” said Stephen Bartolini, portfolio manager at T. Rowe Price, which manages more than $10 billion in inflation-protected strategies. “The big fear in risk markets is that we get a big CPI print and it validates the narrative that inflation is coming back and the Fed is going to have to move faster.” The focus on inflation is nothing new, but it became even more critical after a Feb. 2 report showed average hourly earnings jumped in January at the fastest pace since 2009. That contributed to the dive in stocks. (It also led President Donald Trump to tweet about the “old days” when stocks would go up on good economic news.)

Read more …

Should be filed under Famous Last Words, but won’t be.

IMF Chief Lagarde Says Market Swings Aren’t Worrying (R.)

Sharp swings in global financial markets in the past few days are not worrying since economic growth is strong but reforms are still needed to avert future crises, the managing director of the International Monetary Fund said on Sunday. Christine Lagarde, speaking at a conference on global business and social trends in Dubai, said economies were also supported by plenty of financing available. “I‘m reasonably optimistic because of the landscape we have at the moment. But we cannot sit back and wait for growth to continue as normal,” she said in her first public comments on market movements since the latest round of turmoil at the end of last week.

“I‘m ringing not the alarm signal, but the strong encouragement and warning signal.” Global stock markets were hit by wild fluctuations, with the U.S. benchmark S&P 500 tumbling 5.2% last week, its biggest weekly percentage drop since January 2016. The volatility was fuelled by investor worries about rising interest rates and potential inflation. Lagarde repeated an IMF forecast, originally issued last month, that the global economy would growth 3.9% this year and at the same pace in 2019, which she said was a good backdrop for needed reforms.

Read more …

No society should ever relinquish control over its essentials.

UK Labour Vows Renationalisation Of Water, Energy And Rail (G.)

Labour launched a full-frontal attack on the privatised water industry last night, accusing companies of paying out the “scandalous” sum of £13.5bn in dividends to shareholders since 2010, while claiming huge tax breaks and forcing up prices for millions of customers. The assault by shadow chancellor John McDonnell came as he pledged total, “permanent” and cost-free renationalisation of water, energy and rail if Labour won power at the next election. The three privatisations in the 1980s and 1990s became hallmarks of the Tory governments of Margaret Thatcher and John Major. The dramatic intervention – which stunned the companies involved – was the strongest denunciation yet by Jeremy Corbyn’s Labour of the privatisation programme that has become part of the British political landscape of the last 40 years.

The Conservative party and the Confederation of British Industry both condemned McDonnell’s comments. The CBI said Labour’s renationalisation agenda would “wind the clock back on our economy” while chief secretary to the Treasury Liz Truss warned that placing politicians in charge of public utilities “didn’t work last time and won’t work this time”. McDonnell told the Observer that water companies could not even claim to offer choice to customers but instead operated regional monopolies, and were therefore able to increase prices without the risk of losing out to competitors, as well as “load up debt” while paying out huge dividends to shareholders. “It is a national scandal that since 2010 these companies have paid billions to their shareholders, almost all their profits, whilst receiving more in tax credits than they paid in tax,” he said.

“These companies operate regional monopolies which have profited at the expense of consumers who have no choice in who supplies their water. “The next Labour government will call an end to the privatisation of our public sector, and call time on the water companies, who have a stranglehold over working households. Instead, Labour will replace this dysfunctional system with a network of regional, publicly owned water companies.” Citing figures from the National Audit Office, the shadow chancellor said water bills had risen by 40% in real terms since privatisation of the industry in 1989. In 2016-17, the forecast average for water bills was £389 per household. McDonnell claimed that in 2017, privatised water companies paid out a total £1.6bn to their shareholders. Since 2010, the total was £13.5bn.

[..] Corbyn said that Labour would back a “great wave of change across the world in favour of public, democratic ownership and control of our services and utilities. “We can put Britain at the forefront of the wave of change across the world in favour of public, democratic ownership and control of our services and utilities,” he said. “From India to Canada, countries across the world are waking up to the fact that privatisation has failed, and taking back control of their public services,” he added.

Read more …

Banks and governments are accomplices in blowing this bubble.

Australia’s Big Banks Focus On Job Cuts As Inquiry Looms (R.)

Australia’s big banks are responding to a revenue crunch by cutting jobs and other costs, prompting fears on the eve of an inquiry into their businesses that the industry’s tarnished reputation is about to take another hit. Regulators’ demands that banks hold more capital and their scrutiny into internal operations have made cost-cuts the in-vogue metric at the so-called Big Four banks, Australia and New Zealand Bank, Commonwealth Bank of Australia, National Australia Bank and Westpac, to boost profits. But the strategic change will come at a cost for the banks. “If you can be the most successful at bringing your staff numbers down the quickest, that’s going to give you the quickest cost advantage,” said one senior bank insider with direct knowledge of the cost-cutting strategy.

But, added the insider, as jobs cuts mount, “society and the community will push back, won’t accept it.” Cost cuts are not limited to jobs, with banks preparing to make use of improved technology to reengineer back office functions, and reduce the number and physical size of their branches. But the insider said he expected the Big Four to shed up to 40,000 jobs over five years as part of that overhaul, making a reduced wages bill the primary saving. The focus on costs coincides with the start of a royal commission looking into misconduct in the financial sector starting Monday. Scandals that have shaken public confidence include allegations of interest rate rigging, claims of a toxic trading room culture within some banks, and accusations that some institutions withheld legitimate health insurance payouts and gave misleading financial advice.

The inquiry, expected to last a year and which can recommend criminal charges and legislative changes, could potentially result in restrictions that affect bank profits, similar to a government-imposed bank tax levied last year. According to the government, Australia’s big four are still among the most profitable banks in the world, earning net profit margins of 36.4% in the June quarter of 2017. Years of economic growth and a booming property market had encouraged executives to focus on lifting sales rather than trimming operations. “Top line revenue growth is going to be a struggle, so they need to look closely at their cost lines really seriously,” said Brad Potter, head of Australian equities at Nikko Asset Management, which owns shares in the major banks.

Read more …

It’s the economy that causes much of the illness. Putting dollar numbers on it is not the way to go.

Treating Mental Illness Could Save Global Economy Billions (CNBC)

Reducing mental illness is one of the key ways to increase happiness worldwide, according to a study by the Global Happiness Council (GHC). The report, published Saturday, said that while mental illness was one of the main causes of unhappiness in the world, the net cost of treating it was actually negative. “This is because people who are mentally ill become seriously unproductive. So when they are successfully treated, there are substantial gains in output. And these gains exceed the cost of therapy and medication,” GHC researchers said. The most common conditions associated with mental illness are depression and anxiety disorders, the study said. And at least a quarter of the global population were thought to experience these conditions over the course of their lifetime.

Researchers at the GHC also said that mental illness was a “major block” on the global economy as it was found to be the main illness among people of a working age. Therefore, treating the conditions, it said, would save national income per head by 5% — that equates to billions worldwide. The study estimated that for every $1 spent on treating depression, production would be restored by the equivalent of $2.5. And while physical healthcare costs were thought to balance out, the GHC claimed net savings when treating anxiety disorders was greatest of all — with production restored by the equivalent of $3 for every $1 spent. In the U.K., the National Health Service (NHS) estimates that around 10 to 15% of people are considered to have had a mental illness at some stage of their lives. There are many types of mental illness but most conditions fit into either a neurotic or psychotic category, according to the NHS.

Read more …

Any individuals will escape persecution.

Pain Pill Giant Purdue to Stop Promotion of Opioids to Doctors (BBG)

Pain-pill giant Purdue Pharma will stop promoting its opioid drugs to doctors, a retreat after years of criticism that the company’s aggressive sales efforts helped lay the foundation of the U.S. addiction crisis. The company told employees this week that it would cut its sales force by more than half, to 200 workers. It plans to send a letter Monday to doctors saying that its salespeople will no longer come to their clinics to talk about the company’s pain products. “We have restructured and significantly reduced our commercial operation and will no longer be promoting opioids to prescribers,” the company said in a statement. Instead, any questions doctors have will be directed to the company’s medical affairs department. OxyContin, approved in 1995, is the closely held company’s biggest-selling drug, though sales of the pain pill have declined in recent years amid competition from generics.

It generated $1.8 billion in 2017, down from $2.8 billion five years earlier, according to data compiled by Symphony Health Solutions. It also sells the painkiller Hysingla. Purdue is credited with helping develop many modern tactics of aggressive pharmaceutical promotion. Its efforts to push OxyContin included OxyContin music, fishing hats and stuffed plush toys. More recently, it has positioned itself as an advocate for fighting the opioid addiction crisis, as overdoses from prescription drugs claim thousands of American lives each year. Purdue and other opioid makers and distributors face dozens of lawsuits in which they’re accused of creating a public-health crisis through their marketing of the painkillers. Purdue officials confirmed in November that they are in settlement talks with a group of state attorneys general and trying to come up with a global resolution of the government opioid claims.

Read more …

At least there are still some truly pan-European values left.

Asylum Seekers In UK Living In ‘Disgraceful, Unsafe’ Housing (G.)

Asylum seekers are being placed in appalling housing conditions where they are at risk from abuse and violence, according to a survey published on Sunday documenting the lives of new arrivals. A year after the home affairs select committee found asylum seekers were being held in “disgraceful” conditions and called for a major overhaul of the system, new research suggests the situation remains poor. In-depth interviews with 33 individuals inside a north London Home Office asylum accommodation centre found that 82% had found mice in their rooms. The survey, by the human rights charity Refugee Rights Europe, also found that two-thirds of asylum seekers interviewed felt “unsafe” or “very unsafe”.

Others, some of whom have been diagnosed with post-traumatic stress disorder after fleeing violence and persecution from war zones, described how non-residents would enter the building and threaten residents, or simply use the kitchens and hallways to sleep. Of those interviewed, 30% alleged they had experienced verbal abuse in the accommodation from fellow residents or from staff, with 21% claiming they had experienced physical violence. “A number of respondents were under the impression that the cleaning staff may hold racist views. Sometimes this was expressed through abusive or hostile language in English, and, at other times, the respondents were shouted at in a foreign European language which they couldn’t understand,” said the study.

Marta Welander, head of Refugee Rights Europe, said: “An entire year has passed since the home affairs select committee released its alarming report on asylum accommodation in the UK, yet it seems as though little to nothing has changed. Our research revealed terrible hygiene standards and widespread problems with vermin. “Many of the [interviewees] said they felt unsafe in their accommodation, in particular the younger ones or those diagnosed with PTSD. Others explained they’re experiencing health problems, which they attributed to the unsanitary conditions in their bedrooms and communal areas.”

Read more …

C’mon, it’s funny.

Russia Might Sell S-400 Systems To US If Americans Feel Insecure (RT)

The head of Russia’s strategic defense industry corporation Rostec says Moscow is ready to sell S-400 air defense systems to any nation that feels insecure and wants to seal its airspace, including the US if it wants to. Just before the end of the year, Moscow agreed to supply S-400 surface-to-air missile batteries to Ankara, making Turkey the first NATO member state that will integrate Russian technology into the North Atlantic defense structure once the $2.5 billion order is delivered. On Wednesday, Sergey Chemezov, head of the Russian state conglomerate Rostec, extended the offer to purchase S-400 Triumf, or the SA-21 Growler as it is known by NATO, to the Pentagon. “The S-400 is not an offensive system; it is a defensive system. We can sell it to Americans if they want to,” Chemizov told the Wall Street Journal (WSJ) when asked about the strategic reasoning behind the S-400 sale to Turkey.

The S-400, developed by Russia’s Almaz Central Design Bureau, has been in service with the Russian Armed Forces since 2007. The mobile surface-to-air missile system which uses four projectiles can strike down targets 40-400 km away. The deployment of S-400 batteries to Syria served as one of the pillars to the successful Russian anti-Islamic State (IS, formerly ISIS/ISIL) campaign. While the Almaz Bureau is currently developing S-500 systems, foreign orders to purchase the S-400 have skyrocketed. Besides China and Turkey, who are awaiting order deliveries, India, Qatar and Saudi Arabia are currently negotiating to purchase the Russian military hardware. The growing demand can be attributed to the high reliability and long history of the S missile defense system family. The S-200, designed by Almaz in the 1960s, still serves many nations today. On Saturday, a Syrian S-200 Vega medium-to-high altitude surface-to-air missile was allegedly used to intercept an Israeli F-16.

Read more …

The humanitarian industrial complex in all its glory.

Oxfam Staff Partied With Prostitutes In Chad, Haiti, (G.)

Oxfam was hit with new allegations of staff involvement with prostitution on Saturday, after claims that employees at a second country mission had used sex workers while living at the organisation’s premises. Former staff who worked for the charity in Chad alleged that women believed to be prostitutes were repeatedly invited to the Oxfam team house there, with one adding that a senior member of staff had been fired for his behaviour in 2006. Roland van Hauwermeiren, who has since been embroiled in a sexual misconduct scandal in Haiti, was head of Oxfam in Chad at the time. Van Hauwermeiren resigned from Oxfam in 2011, after admitting that prostitutes had visited his villa in Haiti. One former Chad aid worker said on Saturday: “They would invite the women for parties. We knew they weren’t just friends but something else. “I have so much respect for Oxfam. They do great work, but this is a sector-wide problem,” the former staffer told the Observer.

[..] Oxfam said it could not confirm whether it had any records about a Chad staff member dismissed in 2006. Its staff in Chad at the time lived under a strict curfew due to security concerns: employees could not walk around freely and were confined to the guest house from early evening. Some employees had raised the issue of prostitutes with Van Hauwermeiren. Oxfam’s beleaguered chief executive, Mark Goldring, denied suggestions the charity had covered up revelations that staff had hired prostitutes in Haiti during a 2011 relief effort on the earthquake-hit island. His defence of Oxfam’s handling of the scandal came as Britain’s charity regulator said Oxfam had failed to mention allegations of abuse of aid beneficiaries in Haiti and potential sexual crimes involving minors in a report to it in 2011. It took no further action at the time.

[..] The scandal broke on Friday when the Times revealed that senior Oxfam staff had paid earthquake survivors for sex and that a confidential Oxfam report had referred to a “culture of impunity” among aid workers in Haiti. The Times on Saturday said Oxfam did not tell other aid agencies about the behaviour of staff involved after they had left to work elsewhere. Goldring told BBC Radio 4’s Today programme on Saturday: “With hindsight, I would much prefer that we had talked about sexual misconduct, but I don’t think it was in anyone’s best interest to be describing the details of the behaviour in a way that was actually going to draw extreme attention to it.”

Read more …

And what about next week?

Maclean’s Is Asking Men To Pay 26% More For Latest Issue (Maclean’s)

This month, Maclean’s has created two covers with two different prices—one at $8.81, the other at our regular price of $6.99—to reflect the 26% gap between full-time wages paid to men and women in Canada.It’s a cheeky way to draw attention to a gap that has barely budged in decades, but we’re not the first to do this. In 2016, a group of students at the University of Queensland in Australia put on a bake sale. They called it the Gender Pay Gap Bake Sale, and they priced their cupcakes higher for men than women to illustrate Australia’s pay equity gap. The fierce social media backlash (“Kill all women” and “Females are f–king scum, they should be put down as babies” and “I want to rape these feminist c–ts with their f–king baked goods”) was so horrific it made international headlines.

When we discussed the story during our Maclean’s news meeting at the time, we wondered what would happen if we tried it here in Canada. So let’s see, shall we? After years of stasis, pay equity is having its moment as the next beat in the cadence of the #MeToo movement. Our hope is that these dual covers stir the kind of urgent conversation here that is already happening elsewhere around the world. In England, Carrie Gracie, the BBC’s China editor, resigned earlier this year when her pay was revealed to be at least 50 per cent less than her two male counterparts, saying, “My managers had yet again judged that women’s work was worth much less than men’s.” #istandwithcarrie trended on Twitter. In Iceland, after women walked out of work at precisely 2:38 p.m.—a full workday minus 30%, to illustrate the pay gap there—the country enacted a new law that makes it mandatory for companies with 25 or more employees to show they provide equal pay.

Read more …

Surprised? Me neither.

US Professor Fired After Telling Student ‘Australia Isn’t A Country’ (RT)

Southern New Hampshire University has fired a lecturer who insisted that Australia was a continent – but not a country – and took some time to conduct “independent research” into the issue before reviewing a student’s paper. Ashley Arnold, 27, who is studying toward an online sociology degree at Southern New Hampshire University (SNHU), was “shocked” to learn she had failed an assignment, part of which required students to compare social norms between the United States and any other country – in her case Australia. Arnold was downgraded because her professor believed “Australia is a continent; not a country.” At first I thought it was a joke; this can’t be real. Then as I continued to read I realized she was for real,” she told BuzzFeed News. “With her education levels, her expertise, who wouldn’t know Australia is a country? If she’s hesitating or questioning that, why wouldn’t she just Google that herself?”

To address the professor’s apparent ignorance, Arnold sent a series of emails containing references from the school’s library which clearly stated Australia is both a continent and a country. Arnold even referred her to a section of the Australian government’s webpage called “About Australia” that said “Australia is an island continent and the world’s sixth largest country (7,682,300 sq km).” The female professor with PhD in philosophy, whose name is being kept private, was still not convinced, however, and said she needed to conduct “some independent research on the continent/country issue.” After reviewing Arnold’s paper the professor gave her a new grade of a B+, but never apologized, merely acknowledging that she had a “misunderstanding about the difference between Australia as a country and a continent.”

Read more …

Feb 102018
 
 February 10, 2018  Posted by at 11:26 am Finance Tagged with: , , , , , , , , , , , , ,  


Frank Larson Times Square, New York 1950s

 

Worst Week in 2 Years for Stocks Ends on High Note (BBG)
By Betting On Calm, Did Investors Worsen The Stock Market Fall? (G.)
The Scariest Chart For The Market (ZH)
‘Bond Vigilantes’ Are Saddled Up And Ready To Push Rates Higher (CNBC)
The Worst Of The Bond Rout Is Yet To Come, Says Piper Jaffray (CNBC)
US GDP Growth Is Not As Rosy As It Seems (Lebowitz)
2018 Won’t Kill The Speculators. But It Will Teach Them A Lesson Or Two (Xie)
Minimum Wage Awkward Pillar Of Emerging Social Europe (AFP)
Relations Between Britain And The EU Sink To A New Low (Ind.)
UK Has More Than 750,000 Property Millionaires (G.)
Brexit Plan To Keep Northern Ireland In Customs Union Triggers Row (G.)
Greek PM Steps In To Police Exploding Novartis Bribery Investigation (FPh)
EU’s Moscovici Says Greece Will Be ‘Sovereign Country’ After Bailout (K.)

 

 

The one thing that really matters now is volatility, and all the outstanding bets for or against it.

Worst Week in 2 Years for Stocks Ends on High Note (BBG)

U.S. equities ended their worst week in two years on a positive note, but rate-hike fears that pushed markets into a correction remain as investors await American inflation figures on Feb. 14. The S&P 500 tumbled 5.2% in the week, its steepest slide since January 2016, jolting equity markets from an unprecedented stretch of calm. At one point, stocks fell 12% from the latest highs, before a furious rally Friday left the equity benchmark 1.5% higher on the day. Still, the selloff has wiped out gains for the year. Signs mounted that jitters spread to other assets, with measures of market unrest pushing higher in junk bonds, emerging-market equities and Treasuries. The Cboe Volatility Index ended at 29, almost three times higher than its level Jan. 26.

The VIX’s bond-market cousin reached its highest since April during the week, and a measure of currency volatility spiked to levels last seen almost a year ago. Pressure on equities came from the Treasury market, where yields spiked to a four-year high, raising concern the Federal Reserve would accelerate its rate-hike schedule. Yields ended the week at 2.85%, near where they started, as Treasuries moved higher when equity selling reached its most frantic levels. Commodities including oil, gold and industrial metals moved lower Friday. The dollar, euro and sterling all declined. “Sometimes making a bottom can take time,” Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co., said by phone. “Investors should be at least aware, cognizant, and expect a little more volatility after we go through this period of more cathartic volatility.”

Read more …

In more detail: volatility. Or in other words: how the Fed killed the market.

By Betting On Calm, Did Investors Worsen The Stock Market Fall? (G.)

Back in 2008, the non-financial world had to digest a lot of jargon in a hurry – collateralised debt obligations (CDOs), asset-backed securities (ABSs) and the rest of the alphabet soup of derivative products that contributed to the great banking crash. This week’s diet has felt similar. As the Dow Jones industrial average twice fell 1,000 points in a day, we have had to swallow tales about the VIX, the inverse VIX, the XIV, and ETPs. Did this overdose of three-letter acronyms really cause the stock markets to swoon? Have those geniuses in the back offices of investment banks really baffled themselves – and a lot of investors – with complexity again? The short answer to the second question is: yes. The chart shows one of the most spectacular blow-ups you could hope to see.

This is the XIV – it is actually the snappier name for the Credit Suisse VelocityShares Daily Inverse VIX Short Term exchange traded note – since the start of 2016. It was a beautiful investment until, suddenly, it was a disaster. What is the XIV? It was a way to bet that the S&P 500, the main US stock index, would be tranquil – in other words suffer few outbreaks of volatility. The measure of volatility is called the VIX and it is compiled and published by the Chicago Board Options Exchange by noting the prices of various option contracts in the market and then applying a mathematical formula. The VIX is more famously known as the “fear index”. In itself, the VIX is just a number – its long-term average is about 20, more than 30 is a worry, and more than 40 could herald a crisis.

For much of last year it was between 10 and 12 but on Tuesday it hit 50, before recoiling back to around 30 currently. The fun starts when products are invented to trade and speculate on how the VIX will perform. Conventional futures contracts came first. Then ETFs, or exchange-traded funds, a low-cost product that has taken the financial world by storm in the last couple of decades, followed. The XIV is slightly different (it’s a note, rather than a fund) but it comes from the same school. By trading S&P 500 options, or contracts to buy and sell the S&P at points in the future, it was structured to do the exact opposite of the VIX. If volatility in the stock market was low – as it was throughout 2016 and 2017 – owners of the XIV would do well. In the jargon, they were “short vol”. But, if volatility exploded, then the XIV would fall.

Read more …

Posted a different version of this chart (from Arbeter) yesterday, coming from Market Watch.

The Scariest Chart For The Market (ZH)

Interest-rates going up “for the right reason” is bullish, right? Each time interest rates have surged up to their long-term trendline, a ‘crisis’ has occurred…

But this time is different right? Because rates are “going up for the right reason.” Hhmm, the reaction in markets each time the yield on the 10-Year Treasury yield reaches its trendline is ominous…

So the question is – have interest rates ‘ever’ gone up for the right reason? Or is this narrative just one more bullshit line from a desperate industry of asset-gatherers and commission-takers? It does make one wonder what the relationship between US government ‘interest costs’ and global money flow really is. Does an engineered equity tumble spark safe-haven-buying and ease the pain as deficits and debt loads soar. It would certainly help as $300bn additional budget deals are passed, The Fed has left the game, and China is threatening to be a seller not a buyer…

Read more …

If everyone’s on the same side of the boat, somebody must be on the other.

‘Bond Vigilantes’ Are Saddled Up And Ready To Push Rates Higher (CNBC)

There’s reason to be concerned about bond vigilantes, who are no longer under “lock and key” and are free to push yields higher, Wall Street veteran Ed Yardeni told CNBC on Friday. Yardeni, a market historian, coined the term bond vigilantes in the 1980s to refer to investors who sell their holdings in an effort to enforce fiscal discipline. Having fewer buyers drives prices down — and drives yields up — in the fixed-income market. That, in turn, makes it more expensive for the government to borrow and spend. “They had been sort of put under lock and key by the central banks. The Fed had lowered interest rates down to zero in terms of short-term rates and that pushed bond yields down. And then they bought up a lot of these bond yields,” said Yardeni, president of Yardeni Research.

Now the Fed is slowly raising interest rates and starting to unwind its balance sheet. On top of that, new tax cuts were passed and a massive spending deal was just signed into law. “Now people are looking more at the domestic situation and saying, ‘You know what, maybe we need a higher bond yield,'” Yardeni said in an interview with “Power Lunch.” “They’ve saddled up, and they’re riding high. The posse is getting ready. They’re getting the message out.” Bond vigilantes last made their mark during the Clinton administration, when a bond market sell-off forced President Bill Clinton to tone down his spending agenda. Yardeni said while Clinton got the message back then, he doesn’t think the Trump administration has this time around.

Read more …

Sub: Rising rates slam stocks as market volatility rages on.

The Worst Of The Bond Rout Is Yet To Come, Says Piper Jaffray (CNBC)

It all started with bond yields. Spiking yields spilled over onto the stock market in the past week, first triggering a nearly 666-point drop on the Dow last Friday and then sparking two declines of more than 1,000 points within just 4 days. The bond rout will continue with yields on the 10-year possibly reaching 3% in the near term, according to Craig Johnson, senior technical strategist at Piper Jaffray. That is a level it has not reached since January 2014. “This is a 36-year reversal in rates,” Johnson told CNBC’s “Trading Nation” on Thursday. Bond yields, which move inversely to prices, have generally been in decline over the past 3 decades, indicating a long-term bull market for bond prices.

“When you reverse that downtrend from down to up you typically get a momentum response and a quick move up. That’s exactly what you’re seeing in the bond market right now,” added Johnson. “You’ve got to be careful in here right now.” The yield on 10-year Treasurys has risen at a fast clip since the U.S. election in November 2016. Bond yields held at around 1.8% prior to the election and have since moved up 100 basis points to hit a 4-year high of 2.86% this week. The uncertainty of a Trump presidency initially sent bond prices lower and yields higher at the end of 2016. Now, worries over the effect an accelerating economy and rising inflation might have on Federal Reserve policy this year have taken over. Historically, bond prices fall when interest rates rise.

Read more …

No savings and huge debt means less consumer spending. Which is what 70% of US GDP is made of.

US GDP Growth Is Not As Rosy As It Seems (Lebowitz)

Last Friday, GDP for the fourth quarter of 2017 was released. Despite being 0.3% short of expectations at 2.6% annual growth, it nonetheless produced enthusiasm as witnessed by the S&P 500 which jumped 25 points. One of the reasons for the optimism following the release was a strong showing of the consumer which notched 2.80% growth in real personal consumption. The consumer, representing about 70% of GDP, is the single most important factor driving economic growth and therefore we owe it to ourselves to better understand what drove that growth. This knowledge, in turn, allows us to better assess its durability. There are three core means which govern the ability of individuals to spend. The most obvious is income and wages earned.

To help gauge the effect of changes in income we rely on disposable income, or the amount of money left to spend after accounting for required expenses. Real disposable personal income in the fourth quarter, the same quarter for which GDP growth data was released, grew at a 1.80% year over year rate. While other indicators of wage growth are slightly higher, we must consider that payroll gains are not evenly distributed throughout the economy. In fact as shown below 80% of workers continue to see flat to declining growth in their wages. While this may have accounted for some of the growth in consumption we need to consider the two other means of spending over which consumers have control, savings and credit card debt.

Savings: Last month the savings rate in the United States registered one of the lowest levels ever recorded in the past 70 years. In fact, the only time it was lower was in a brief period occurring right before the 2008/09 recession. At a rate of 2.6%, consumers are spending 97.4% of disposable income. The graph below shows how this compares historically. [..] the savings rate is less than half of that which occurred since the 2008/09 recession and well below prior periods.

Credit Card Debt: In addition to reducing savings to meet basic needs or even splurge for extra goods, one can also use credit card debt. Confirming our suspicion about savings, a recent sharp increase in revolving credit (credit card debt) is likely another sign consumers are having trouble maintaining their standard of living. Over the last four quarters revolving credit growth has increased at just under 6% annually which is almost twice as fast as disposable income. Further, the 6% credit card growth rate is about three times faster than that of the years following the recession of 2008/09.

Read more …

The liquidity super machine is stalling.

2018 Won’t Kill The Speculators. But It Will Teach Them A Lesson Or Two (Xie)

A decade of massive, synchronised monetary and fiscal stimulus has led to the greatest asset bubble in history, to the tune of about $100 trillion, nearly 1.5 times the world’s GDP. Compared to 2-3% of GDP growth in the global economy, we should be mindful of the potential and huge cost associated with it. Even though the US stock market is more expensive than in 1929 or 2000, and China’s property valuation is higher than Japan’s a quarter-of-a-century ago, fear-driven selloffs have been rare and brief, leading to the belief that high asset prices are the new normal. Massive amounts of financial and business activities, especially in technology, are predicated on high asset prices going higher. The unusual longevity and resilience of high asset prices are largely because government actions — not herd behaviour in the market — are force-feeding the bubble.

Government actions will lose their grip only when growth expectations crash or inflation flares up. Neither is a major risk for 2018. Hence, 2018 won’t kill the speculators of the world. But 2018 will teach them a lesson or two. High-risk assets such as internet stocks and high-end properties will struggle like never before in the past decade. US interest rates will rise above inflation for the first time in a decade. And China is tightening, especially in the property sector, out of fear of a life-threatening financial crisis. China accounts for about half of global credit growth. The interaction between the US Federal Reserve’s quantitative easing and China’s credit targeting has been the liquidity super machine. It is stalling in 2018. The asset bubble demands that the excess liquidity-money supply rises faster than GDP to sustain it.

This year may see global money supply line up with GDP. The Fed is likely to raise interest rates from the current 1-1.25% and take the level to 2.5%. This is still low compared with the 4.5-5% nominal GDP growth rate. But the US stock market is more expensive than it was in 1929 or 2000. When the interest rate surpasses inflation, it will become wobbly. Policymakers are caught between a rock and a hard place. The structural problems that led to the 2008 crisis are still here. The global economy grows ever more dependent on asset bubbles. If the global asset bubble bursts, the economy will slide into recession. Hence, when a market wobbles — as it probably will in 2018 — policymakers will come out to soothe market sentiment and may even temporarily reverse the tightening.

Read more …

The EU is a feudal neo-liberal machine. There is no such thing as Soical Europe anywhere but in words. It’s about keeping the poor down, and dependent on your money.

Minimum Wage Awkward Pillar Of Emerging Social Europe (AFP)

Twenty-two out of 28 EU states have introduced a minimum wage, trumpeted as a key pillar in the construction of a social Europe. But huge disparities from one country to the next are fuelling resistance from opponents who see the policy as dragging down competitiveness, sovereignty as well as levelling down salaries. Brexit, as an expression of eurosceptic populism, has jolted the European Commission into going on the offensive as it looks to show the European Union is not just a common market but a bloc with a social dimension. A November 17 Social Summit for Fair Jobs and Growth last year set the ball rolling as all 28 EU members signed up to a Europe-wide charter on social rights, laying down 20 basic principles including statutory minimum wages as a mainstay of a policy framework to boost convergence.

“Adequate minimum wages shall be ensured, in a way that provide for the satisfaction of the needs of the worker and his/her family in the light of national economic and social conditions, whilst safeguarding access to employment and incentives to seek work,” according to the guidelines. But the non-binding declaration is, as such, merely symbolic, not least because “European treaties stipulate clearly that salaries come under the national purview,” notes Claire Dheret, head of employment and social Europe at the Brussels-based European Policy Centre (EPC). To date, the Gothenburg charter is being respected only partially, even if all but six EU states have a legal minimum wage, as witnessed by Eurostat data highlighting starkly varying levels from Bulgaria’s 460 leva (€235; $270) a month gross to €1,999 in Luxembourg, that is, nine times as much.

Even so, the discrepancy does shrink to around a factor of three when the cost of living in each state is taken into account. But the Eurostat data shows up major discrepancies between eastern and western states. Ten of the former pay a minimum of less than €500, whereas seven western EU members have set rates surpassing €1,300 euros. Five southern states pay between €650 and €850. The six without an official minimum, which have their own arrangements to cover the basic needs of low earners are Austria, Cyprus, Denmark, Finland, Italy and Sweden.

Read more …

We can repeat this every day: the mess gets messier.

Relations Between Britain And The EU Sink To A New Low (Ind.)

David Davis has been dragged into renewed war of words with Brussels over the Brexit transition period, accusing the EU of having a “fundamental contradiction” in its approach and wanting to “have it both ways” after a week of fruitless talks. Relations between Britain and the European Commission sank to a new low on Friday after Michel Barnier, the EU’s chief negotiator, casually claimed at a press conference the UK had cancelled an important meeting due to a “diary clash”. UK officials behind the scenes took offence to the claim and said the meeting had not been cancelled at all and instead took place in the afternoon. Mr Barnier sealed the state of mutual incomprehension, telling reporters in Brussels that he had “problems understanding the UK’s position” on the transition period.

In a statement issued on Friday afternoon after Mr Barnier’s press conference – a solo affair in contrast to previous joint outings – Mr Davis said the EU could not “have it both ways” on the transition period. “Given the intense work that has taken place this week it is surprising to hear that Michel Barnier is unclear on the UK’s position in relation to the implementation period,” he said. “As I set out in a speech two weeks ago, we are seeking a time-limited period that maintains access to each other’s markets on existing terms. “However for any such period to work both sides will need a way to resolve disputes in the unlikely event that they occur.

Read more …

And collapsing social services, health care etc. It’s a choice, not a flaw.

UK Has More Than 750,000 Property Millionaires (G.)

There are now more than 750,000 property millionaires in Britain, and in some towns in the south of England half of all homes cost more than £1m, according to analysis by website Zoopla. Despite a slowing property market, Zoopla estimated that the number of property millionaires has climbed to 768,553, a rise of 23% since August 2016. The figures underscore the hugely lopsided nature of the UK property market. Yorkshire and Humberside has 4,103 property millionaires, and Wales 2,223, while in London the figure is 430,720. The figures suggest that while one in 20 people in the capital are paper property millionaires, the same can be said for only one in every 1,400 people in Wales. Zoopla did not take into account the mortgage debt attaching to properties, just the number of properties valued at over £1m.

Outside London, Guildford in Surrey is the town with the most property millionaires, estimated at 5,889, followed by Cambridge and Reading. But Beaconsfield in Buckinghamshire emerges as having the greatest concentration of property wealth in just one town. Zoopla found that 49% of all the houses in the town of 12,000 people nestled below the Chiltern Hills are valued at more than £1m. Agents in the town – dubbed Mayfair in the Chilterns – are currently marketing an opulent six-bed home in Beaconsfield’s “golden triangle” for £6m, boasting a cinema, wine-tasting room and its own six-person smoke-mirrored passenger lift opening on to a galleried balcony with a “Sexy Crystals” chandelier. There is a separate annexe for staff.

Read more …

The EU plays the ultimate card: Scotland. The UK has no rebuttal. None. Nada.

Brexit Plan To Keep Northern Ireland In Customs Union Triggers Row (G.)

Officials from the UK and EU are drawing up a plan to in effect keep Northern Ireland in the customs union and the single market after Brexit in order to avoid a hard border. The opening of technical talks followed a warning from Brussels that keeping the region under EU laws was currently the only viable option for inclusion in its draft withdrawal agreement. The development, first reported by the Guardian on Friday and later confirmed by the EU’s chief negotiator, Michel Barnier, triggered an immediate row. Scotland’s first minister, Nicola Sturgeon, tweeted: “If NI stays in single market, the case for Scotland also doing so is not just an academic ‘us too’ argument – it becomes a practical necessity. Otherwise we will be at a massive relative disadvantage when it comes to attracting jobs and investment.”

Anne-Marie Trevelyan, a Tory MP and officer in the European Research Group of Brexit-supporting Conservatives, accused Barnier of “playing hardball”. “I am surprised that the media are reporting his comments as if they are the only voice and hard fact,” she said. “Perhaps Mr Barnier could remember that the UK is in negotiations, which is a two-way discussion.” “It is important to tell the truth,” Barnier said. “The UK decision to leave the single market and to leave the customs unions would make border checks unavoidable. Second, the UK has committed to proposing specific solutions to the unique circumstances of the island of Ireland. And we are waiting for such solutions. “The third option is to maintain full regulatory alignment with those rules of the single market and the customs union, current or future, that support north-south cooperation, the all-island economy and the Good Friday agreement. “It is our responsibility to include the third option in the text of the withdrawal agreement to guarantee there will be no hard border whatever the circumstances.”

Read more …

The present European commissioner for migration and home affairs is reported to have taken €40 million in bribes. He should lose his job, today.

Greek PM Steps In To Police Exploding Novartis Bribery Investigation (FPh)

Just days after 10 former ministers in Greece were implicated in bribery allegations against Novartis, the country’s prime minister is calling for a special parliamentary committee to investigate the charges, which have been pegged as slanderous by some politicians pulled into the widening scandal. Meanwhile, three former Novartis executives believed to have provided the meat of the allegations have come under fire, even as their lawyer fights to shield their identities. The investigation targeting Novartis’s Greece offices has been going on since last January, but it blew up earlier this week when news emerged that the case would be submitted to the Greek parliament, which would then decide whether to prosecute the 10 politicians. Novartis is the target of allegations that it bribed doctors and government officials to help boost sales of its drugs.

Now Prime Minister Alexis Tsipras wants the special committee to look into allegations that the 10 politicians received millions of euros in exchange for fixing drug prices and granting other favors to Novartis, according to local press reports. A spokesman for Novartis told FiercePharma that the company continues “to cooperate with requests from local and foreign authorities.” Novartis has not received an indictment related to the investigation in Greece, he added. According to press accounts of the prosecutors’ report, the allegations of bribery stemmed from testimony from three witnesses who worked for Novartis. The witnesses spoke to the FBI, which joined in the investigation in Greece. The employees reported that Greece’s health minister from 2006 to 2009 took €40 million ($49 million) in exchange for ordering “a huge amount” of Novartis products, according to The Greek Reporter.

The health minister working between 2009 and 2010 allegedly accepted €120,000 ($147,000) from the company and laundered it through a computer hardware firm, the news organization added. At least one of the politicians named in the report wants the identities of the three Novartis witnesses to be revealed. Dimitris Avramopoulos, who was the health minister from 2006 to 2009 and now serves as European commissioner for migration and home affairs, held a press conference Friday during which he said he will file a lawsuit demanding the names of the witnesses be made public, according to Politico.

Read more …

How dare he use the word sovereign in this context? Greece, like all other EU nations, was and is always sovereign. Demand his resignation.

EU’s Moscovici Says Greece Will Be ‘Sovereign Country’ After Bailout (K.)

On exiting its third international bailout in August, Greece will be an “absolutely sovereign country,” European Economic and Monetary Affairs Commissioner Pierre Moscovici told a conference on Friday organized by the Stavros Niarchos Foundation Cultural Center (SNFCC), French magazine Le Nouvel Observateur and Kathimerini in Athens. “There should be no precautionary credit line,” Moscovici said. “There should be an end to the programs.” The commissioner said that Greece “did what it had to do” but that economic and structural reforms must continue. He also drew attention to an “issue of administrative competence,” without elaborating. In addition, Moscovici expressed his confidence in Prime Minister Alexis Tsipras, who he described as “smart and flexible,” adding that their relationship was “perfect.” Tsipras and Finance Minister Euclid Tsakalotos decided to “play ball,” Moscovici said. He further said Tsakalotos’s predecessor Yanis Varoufakis wreaked major political and financial damage on Greece.

Read more …

 

 

 

Jan 312018
 
 January 31, 2018  Posted by at 10:58 am Finance Tagged with: , , , , , , , , , , ,  


Paul Gauguin Farm in Brittany 1894

 

Market Euphoria May Turn to Despair If 10-Year Yield Jumps to 3% (BBG)
Forget Stocks, Look At EU Bonds – They Are The Real Problem (Luongo)
The Ticking Time Bomb in the Municipal-Bond Market (Barron’s)
UK Interest-Only Mortgagees Are at Risk of Losing Their Homes
US National Debt Will Jump by $617 Billion in 5 Months (WS)
Trump Urges Congress To Pass $1.5 Trillion In Infrastructure Spending (R.)
Trump Joins Bezos, Dimon, Buffett In Pledge To Stop Soaring Drug Prices (MW)
Trump Says ‘100%’ After He’s Asked to Release GOP Memo (BBG)
Saving Rate Drops to 12-Year Low As 50% of Americans Don’t Have Savings (WS)
U.S. Regulators Subpoena Crypto Exchange Bitfinex, Tether (BBG)
Customer Lawsuits Pummel Spanish Banks (DQ)
Britons Ever More Deeply Divided Over Brexit (R.)
The GDP of Bridges to Nowhere (Michael Pettis)

 

 

If central banks and governments have really lost control over bonds, find shelter.

Market Euphoria May Turn to Despair If 10-Year Yield Jumps to 3% (BBG)

It’s getting harder and harder to quarantine the selloff in Treasuries from equities and corporate bonds. The benchmark 10-year U.S. yield cracked 2.7% on Monday, rising to a point many forecasters weren’t expecting until the final months of 2018. For over a year, range-bound Treasuries helped keep financial markets in a Goldilocks state, with interest rates slowly rising due to favorable forces like stronger global growth and the Federal Reserve spearheading a gradual move away from crisis-era monetary policy. Yet the start of 2018 caught many investors off guard, with the 10-year yield on pace for its steepest monthly increase since November 2016. It’s risen 30 basis points this year and reached as high as 2.73% in Asian trading Tuesday.

Suddenly, they’re confronted with thinking about what yield level could end the good times seen since the presidential election. For many, 3% is the breaking point at which corporate financing costs would get too expensive, the equity market would lose its luster and growth momentum would fade. “We are at a turning point in the psyche of markets,” said Marty Mitchell, a former head government bond trader at Stifel Nicolaus & Co. and now an independent strategist. “A lot of people point to 3% on the 10-year as the critical level for stocks,” he said, noting that higher rates signal traders are realizing that quantitative easing policies really are on the way out.

U.S. stocks have set record after record, buoyed by strong corporate earnings, President Donald Trump’s tax cuts and easy U.S. financial conditions. The S&P 500 Index has returned around 6.8% this year, once reinvested dividends are taken into account, and the U.S. equity benchmark is already higher than the level at which a Wall Street strategists’ survey last month predicted it would end 2018. What often goes unsaid in explaining the equity-market exuberance is that Treasury yields refused to break higher last year. Instead, they remained in the tightest range in a half-century, allowing companies to borrow cheaply and forcing investors to seek out riskier assets to meet return objectives.

Read more …

It’s all bonds, not even just sovereign bonds. Investors will move from equities into bonds all over the place.

Forget Stocks, Look At EU Bonds – They Are The Real Problem (Luongo)

While all the headlines are agog with stories about the Dow Jones dropping a couple hundreds points off an all-time high, German bunds are getting killed right before our eyes. The Dow is simply a market overdue for a meaningful correction in a primary bull market. And it’s a primary bull market brought on by a slow-moving sovereign debt crisis that will engulf Europe. It’s not the end of the story. Hell, the Dow isn’t even a major character in the story. In fact, similar stories are being written in French 10 year debt, Dutch 10 year debt, and Swiss 10 year debt. These are the safe-havens in the European sovereign debt markets. Meanwhile, Italian 10 year debt? Still range-bound. Portuguese 10 year debt? Near all-time high prices. The same this is there with Spain’s debt. All volatility stamped out. Why? Simple. The ECB.

The ECB’s quantitative easing program and negative interest rate policy (NIRP) drove bond yields across the board profoundly negative for more than a year. [..] the ECB is trapped and cannot allow rates to rise in the vulnerable sovereign debt markets — Italy, Portugal, Spain — lest they face bank failures and a real crisis. The problem with that is, the market is scared and so they are selling the stuff the ECB isn’t buying – German, French, Dutch, Swiss debt. In simple terms, we are seeing the flight into the euro intensify here as investors are raising cash. The euro and gold are up. The USDX continues to be weak even though capital is pouring into the U.S. thanks to fundamental changes to tax and regulatory policy under President Trump. In the short term Dow Jones and S&P500 prices are overbought. Fine. Whatever. But, the real problem is not that. The real problem is the growing realization in the market that governments and central banks do not have an answer to the debt problem.

[..] The U.S. economy is about to be unleashed by Trump’s tax cut law. It will be able to absorb higher interest rates for a while. Yield-starved pension funds, as Armstrong rightly points out, will be bailed out slightly forestalling their day of reckoning. And in doing so, higher rates in the U.S. are driving core-rates higher in Europe. An overly-strong euro is crushing any hope of further economic recovery in the periphery, like Italy. The debt load on Italy et.al. has increased relative to their national output by around 20% since the end of 2016. This will put the ECB at risk of a massive loss of confidence when Italian banks start failing, Italy’s budget deficit starts expanding again and hard-line euroskeptics win the election in March. As capital is drained out of Europe into U.S. equities, the dollar, gold and cryptocurrencies, things should begin to spiral upwards rapidly.

Read more …

See? More bonds. Meredith Whitney was 10 years early.

The Ticking Time Bomb in the Municipal-Bond Market (Barron’s)

There’s a looming disaster in the market for municipal debt. Every market participant knows about it, and there isn’t much any of them can do about it. Many state and local governments, even more than corporations, have promised generous pensions they can’t afford. The promises may have looked plausible in the past, especially during the dot-com boom, when money that pension funds put in the markets was doubling. When the market crashed, so did their returns—and, a few years later, the global financial crisis took out another substantial chunk. And with interest rates at historic lows, bonds have failed to deliver the income the funds relied on. While governments delay dealing with the problem as long as they can, analysts and researchers are wondering if we have reached the point of no return. For investors in municipal bonds, it could mean future defaults and losses.

“We are increasingly wary of high pension exposure, especially among state and local credits,” the Barclays muni-research team wrote this month, citing “inflated return targets, low funded ratios, growing obligations, perhaps heavy allocations to equities and compressed tax revenues make for especially adverse conditions.” What’s more, “short-term investment gains won’t be sufficient to plug liability gaps.” Yet many pensions still assume they will be able to generate the returns they saw in the past. New Jersey’s pension and the California Public Employees’ Retirement System have lowered their assumed rate of return to 7%. But with the 30-year Treasury yielding less than 3% and stocks already at record highs, it’s unclear how public markets can generate 7%—which is why many pensions have turned to higher-risk, lower-liquidity strategies, such as private equity.

Muni investors, for their part, are increasingly sensitive to pensions’ widening gap. After the financial crisis and the ensuing recession, they suddenly became interested in pension finances. A report late last year by the Center for Retirement Research at Boston College found that, as pension liabilities grew, spreads between state and local municipal bonds and Treasuries also increased. When such issuers came to issue new debt, they discovered the market was charging them more to borrow. “Pensions have become increasingly relevant to the municipal bond markets and can have a meaningful impact on the borrowing costs of a municipality,” the report says.

Read more …

Rising bond yields mean higher mortgage rates. Australia is overflowing with interest only loans. Plenty other countries have loads of it too.

UK Interest-Only Mortgagees Are at Risk of Losing Their Homes

Some borrowers with interest-only mortgages may lose their homes as a result of shortfalls in repayment plans, the U.K.’s Financial Conduct Authority warned. The FCA has identified three peaks in interest-only mortgage repayments, the first of which is currently underway. Defaults are less likely in the present wave of maturities because the homeowners are approaching retirement and have higher incomes. The next two peaks, from 2027 through 2028 and in 2032, are more at risk of shortfalls, the regulator said. Customers are reluctant to discuss with their lenders how they’ll pay off the loans, limiting their options, the FCA found. Almost 18% of outstanding mortgages in the U.K. are interest-only or involve only partial payment of the capital, according to the statement.

“Since 2013, good progress has been made in reducing the number of people with interest-only mortgages,” Jonathan Davidson, executive director of supervision retail and authorization at the regulator, said in a statement. “However, we are very concerned that a significant number of interest-only customers may not be able to repay the capital at the end of the mortgage and be at risk of losing their homes.” The FCA reviewed 10 lenders representing about 60% of the interest-only mortgage market for the study. The supervisor also urged lenders to review and improve their own strategies regarding repayment of the loans.

Read more …

Now add some infrastructure.

US National Debt Will Jump by $617 Billion in 5 Months (WS)

While everyone is trying to figure out how to twist the new tax cut to their advantage and save some money, the US Treasury Department just announced how much net new debt it will have to sell to the public through the second quarter to keep the government afloat: $617 billion. That’s what the Treasury Department estimates will be the total amount added to publicly traded Treasury securities — or “net privately-held marketable borrowing” — through the end of the second quarter. This will be the net increase in the US debt through the end of Q2. By quarter: During Q1, the Treasury expects to increase US public debt by $441 billion. It includes estimates for “lower net cash flows.” During Q2 – peak tax seasons when revenues pour into the Treasury – it expects to increase US public debt by $176 billion.

It also “assumes” that with these increases in the debt, it will have a cash balance at the end of June of $360 billion. So over the next five months, if all goes according to plan, the US gross national debt of $24.5 trillion currently – which includes $14.8 trillion in publicly traded Treasury securities and $5.7 trillion in internally held debt – will surge to about $25.1 trillion. That’s a 4% jump in just five months. Note the technical jargon-laced description for this (marked in green on the chart). The flat lines in 2013, 2015, and 2017 are a result of the prior three debt-ceiling fights. Each was followed by an enormous spike when the debt ceiling was lifted or suspended, and when the “extraordinary measures” with which the Treasury keeps the government afloat were reversed. And note the current debt ceiling, the flat line that started in mid-December.

In November, Fitch Ratings said optimistically that, “under a realistic scenario of tax cuts and macro conditions,” the US gross national debt would balloon to 120% of GDP by 2027. The way things are going right now, we won’t have to wait that long. Back in 2012, gross national debt amounted to 95% of GDP. Before the Financial Crisis, it was at 63% of GDP. At the end of 2017, gross national debt was 106% of GDP! Over the next six month, the debt will grow by about 4%. Unless a miracle happens very quickly, the debt will likely grow faster over the next five years due to the tax cuts than over the past five years. But over the past five years, the gross national debt already surged nearly 25%, or by $4.1 trillion. So that’s a lot of borrowing, for an economy that is growing at a decent clip.

Read more …

Coverage of SOTU proves my point: Moses split the nation.

As for infrastructure, they will go for what provides most short term gain. That is, make people pay. For roads, not public transport, for instance.

Trump Urges Congress To Pass $1.5 Trillion In Infrastructure Spending (R.)

President Donald Trump called on the U.S. Congress on Tuesday to pass legislation to stimulate at least $1.5 trillion in new infrastructure spending. In his State of the Union speech to Congress, Trump offered no other details of the spending plan, such as how much federal money would go into it, but said it was time to address America’s “crumbling infrastructure.” Rather than increase federal spending massively, Trump said: “Every federal dollar should be leveraged by partnering with state and local governments and, where appropriate, tapping into private-sector investment.” The administration has already released an outline of a plan that would make it easier for states to build tollways and to privatize rest stops along interstate highways.

McKinsey & Company researchers say that $150 billion a year will be required between now and 2030, or about $1.8 trillion in total, to fix all the country’s infrastructure needs. The American Society of Civil Engineers, a lobbying group with an interest in infrastructure spending, puts it at $2 trillion over 10 years. Trump said any infrastructure bill needed to cut the regulation and approval process that he said delayed the building of bridges, highways and other infrastructure. He wants the approval process reduced to two years, “and perhaps even one.” Cutting regulation is a top priority of business lobbying groups with a stake in building projects and the U.S. Chamber of Commerce.

Read more …

Just the kind of folk you want in charge of your health. With your medical needs standing in the way of their profits.

Trump Joins Bezos, Dimon, Buffett In Pledge To Stop Soaring Drug Prices (MW)

President Trump pledged to bring down drug prices. “One of my greatest priorities is to reduce the price of prescription drugs,” Trump said during his State of the Union address on Tuesday evening. “In many other countries, these drugs cost far less than what we pay in the United States and it’s over, very unfair. That is why I have directed my administration to make fixing the injustice of high drug prices one of our top priorities for the year.” Mark Hamrick, Washington, D.C. bureau chief at Bankrate.com, said the president has made that promise before. “Will his choice of a former drug industry executive, Alex Azar, now the head of Health and Human Services, deliver results on that front?” he said. “I’d prefer to place my bet on the partnership just announced by Berkshire Hathaway, J.P. Morgan Chase and Amazon.”

Earlier Tuesday, Amazon, Berkshire Hathaway and JP Morgan Chase, three of the biggest companies in the U.S., surprised the health-care industry on Tuesday with a plan to form a company to address rising health costs for their U.S. employees. They said it will be “free from profit-making incentives and constraints.” Health-care costs have skyrocketed over the last 60 years, according to the Kaiser Family Foundation, a nonprofit, private foundation based in Washington, D.C. In 1960, hospital costs cost $9 billion. In 2016, they cost $1.1 trillion. In 1960, physicians and clinics costs were $2.7 billion, but ballooned to $665 billion. Prescription drug prices soared from $2.7 billion in 1960 to $329 billion. U.S. health-care spending reached $3.3 trillion, or $10,348 per person in 2016.

The Trump administration has pledged to roll back the 2010 Affordable Care Act, perhaps Barack Obama’s signature achievement as U.S. president. Roughly 1 million people will lose their insurance under Trump’s plans, according to the Congressional Budget Office. Berkshire Hathaway chairman and CEO Warren Buffett didn’t hold back in excoriating the health-care industry. “The ballooning costs of health care act as a hungry tapeworm on the American economy,” Buffett said. Amazon founder CEO Jeff Bezos and J.P. Morgan Chase chairman and CEO Jamie Dimon were more measured in their remarks. “Amazon, Chase and Berkshire Hathaway think they can do it better than the insurance companies,” said Jamie Court, president of Consumer Watchdog. “There’s a lot of frustration with the high cost of health insurance, yet government’s offering almost no systemic solutions. It’s as big a change as I have seen in the market in years.”

Read more …

Just do it?! Perhaps it makes sense not to release it before SOTU, it would have been the only talking point.

Trump Says ‘100%’ After He’s Asked to Release GOP Memo (BBG)

President Donald Trump was overheard Tuesday night telling a Republican lawmaker that he was “100%” planning to release a controversial, classified GOP memo alleging bias at the FBI and Justice Department. As he departed the House floor after delivering his State of the Union address, C-SPAN cameras captured Representative Jeff Duncan, a South Carolina Republican, asking Trump to “release the memo.” Republican lawmakers say the four-page document raises questions about the validity of the investigation into possible collusion between Trump’s campaign and Russia, now led by Special Counsel Robert Mueller. “Oh yeah, don’t worry, 100%,” Trump replied, waving dismissively. “Can you imagine that? You’d be too angry.”

Republicans in the House moved to release the memo, authored by House Intelligence Chairman Devin Nunes, in a party-line vote on Monday. The move has been opposed by Democrats, who argue the memo gives an inaccurate portrayal of appropriate actions undertaken by law enforcement, and by the Justice Department, which has said it should remain classified. Releasing the memo has become a cause for conservative congressional Republicans, who say the FBI and the Justice Department pursued the investigation of possible Russian ties to the Trump presidential campaign under false pretenses. Trump has as many as five days to review the document for national security concerns, and White House officials insisted earlier Tuesday he hadn’t yet seen the document.

Read more …

Talk about your American Dream: “..households are living paycheck-to-paycheck even if those paychecks are reasonably large and even if life is comfortable at the moment.”

Saving Rate Drops to 12-Year Low As 50% of Americans Don’t Have Savings (WS)

In terms of dollars, personal saving dropped to a Seasonally Adjusted Annual Rate of $351.6 billion, meaning that at this rate in December, personal savings for the whole year would amount to $351.6 billion. This is down from the range between $600 billion and $860 billion since the end of the Financial Crisis. But who is – or was – piling up these savings? Numerous surveys provide an answer, with variations only around the margins. For example, the Federal Reserve found in its study of US households: Only 48% of adults have enough savings to cover three months of expenses if they lost their income. An additional 22% could get through the three-month period by using a broader set of resources, including borrowing from friends and selling assets. But 30% would not be able to manage a three-month financial disruption. 44% of adults don’t have enough savings to cover a $400 emergency and would have to borrow or sell something to make ends meet.

Folks who had experienced hardship were more likely to resort to “an alternative financial service” such as a tax refund anticipation loan, pawn shop loan, payday loan, auto title loan, or paycheck advance, which are all very expensive. Similarly, Bankrate found that only 39% of Americans said they’d have enough savings to be able to cover a $1,000 emergency expense. They rest would have to borrow, sell, cut back on spending, or not deal with the emergency expense. All these surveys say the same thing: about half of Americans have little or no savings though many have access to some form of credit, including credit cards, pawn shops, payday lenders, or relatives. So what does it mean when the “saving rate” declines?

Many households spend more than they make. For them, the personal saving rate is a negative number. This negative personal saving rate translates into borrowing, which explains the 5.7% year-over-year surge in credit card debt, and the 5.5% surge in overall consumer credit. It boils down to this: most of the positive saving rate, with savings actually increasing, takes place at the top echelon of the economy – at the top 40%, if you will – where households are flush with cash and assets and where the saving rate is very large. But the growth in borrowing for consumption items (the negative saving rate) takes place mostly at the bottom 60%, where households are living paycheck-to-paycheck even if those paychecks are reasonably large and even if life is comfortable at the moment.

Read more …

Peculiar: $2.3 billion ‘worth’ of a dollar-pegged ‘currency’, backed by nothing much in proof.

U.S. Regulators Subpoena Crypto Exchange Bitfinex, Tether (BBG)

U.S. regulators are scrutinizing one of the world’s largest cryptocurrency exchanges as questions mount over a digital token linked to its backers. The U.S. Commodity Futures Trading Commission sent subpoenas on Dec. 6 to virtual-currency venue Bitfinex and Tether, a company that issues a widely traded coin and claims it’s pegged to the dollar, according to a person familiar with the matter, who asked not to be identified discussing private information. The firms share the same chief executive officer. Tether’s coins have become a popular substitute for dollars on cryptocurrency exchanges worldwide, with about $2.3 billion of the tokens outstanding as of Tuesday.

While Tether has said all of its coins are backed by U.S. dollars held in reserve, the company has yet to provide conclusive evidence of its holdings to the public or have its accounts audited. Skeptics have questioned whether the money is really there. “We routinely receive legal process from law enforcement agents and regulators conducting investigations,” Bitfinex and Tether said Tuesday in an emailed statement. “It is our policy not to comment on any such requests.” Bitcoin, the biggest cryptocurrency by market value, tumbled 10% on Tuesday. It fell another 3.2% to $9,766.41 as of 9:19 a.m. in Hong Kong, according to composite pricing on Bloomberg. The virtual currency hasn’t closed below $10,000 since November.

Read more …

Who’s aiding Spain in keeping its problems hidden? 30,000 complaints in 9 months, and the ECB is silent?!

Customer Lawsuits Pummel Spanish Banks (DQ)

Following a succession of consumer-friendly rulings, bank customers in Spain are increasingly taking their banks to court. And many of them are winning. Last year an unprecedented wave of litigation against banks forced the Ministry of Justice to set up dozens of courts specialized in mortgage matters to prevent the collapse of the rest of the national judicial system. The Bank of Spain, according to its own figures, received 29,957 complaints from financial consumers between January and September 2017 — already double that of the previous year and by far the highest number of complaints registered since 2013, a record year when investors and customers were desperately trying to claw back the money they’d lost in the preferred shares that issuing banks had pushed on their own customers as savings products.

In 2017, eight out of 10 complaints related to one key product: mortgages, and in particular the so-called “floor clauses” contained within them. These floor clauses set a minimum interest rate — typically of between 3% and 4.5% — for variable-rate mortgages, even if the Euribor dropped far below that figure. This, in and of itself, was not illegal. The problem is that most banks failed to properly inform their customers that the mortgage contract included such a clause. Those that did, often told their customers that the clause was an extreme precautionary measure and would almost certainly never be activated. After all, they argued, what are the chances of the Euribor ever dropping below 3.5% for any length of time? At the time (early 2009), Europe’s benchmark rate was hovering around the 5% mark.

Within a year it had crashed below 1% and has been languishing at or below zero ever since. As a result, most Spanish banks were able to enjoy all the benefits of virtually free money while avoiding one of the biggest drawbacks: having to offer customers dirt-cheap interest rates on their variable-rate mortgages. But all that came to a crashing halt in May 2013 when Spain’s Supreme Court ruled that the floor clauses were abusive and that the banks must reimburse all the funds they’d overcharged their mortgage customers — but only from the date of the ruling! Then, on December 21, 2016, the European Court of Justice (ECJ) delivered a further hammer blow when it acknowledged the right of homeowners affected by “floor clauses” to be reimbursed money dating back to when the mortgage contract was first signed. Since the ECJ ruling, law firms are now so confident of winning floor-clause cases that they’re even offering no win, no-fee deals.

Read more …

US and UK suffer from the exact same problem.

Britons Ever More Deeply Divided Over Brexit (R.)

The social divide revealed by Britain’s 2016 vote to leave the European Union is not only here to stay but deepening, according to academic research published on Wednesday. Think tank The UK in a Changing Europe said Britons were unlikely to change their minds about leaving the EU, despite the political and economic uncertainty it has brought, because attitudes are becoming more entrenched. “The (Brexit) referendum highlighted fundamental divisions in British society and superimposed a leave-remain distinction over them. This has the potential to profoundly disrupt our politics in the years to come,” said Anand Menon, the think tank’s director.

Britain is negotiating a deal with the EU which will shape future trade relations, breaking with the bloc after four decades, but the process is complicated by the divisions within parties, society and the government itself. Menon said the research, based on a series of polls over the 18-month period since Britain voted to leave the European Union, showed 35% of people self-identify as “Leavers” and 40% as “Remainers”. Research also found that both sides had a tendency to interpret and recall information in a way that confirmed their pre-existing beliefs which also added to the deepening of the impact of the vote. The differences showed fragmentation was more determined by age groups and location than by economic class.

Polls have shown increasing support for a second vote on whether or not to leave the European Union once the terms of departure are known, but such a vote would not necessarily provide a different result, a poll by ICM for the Guardian newspaper indicated last week. The report also showed that age was a better pointer to how Britons voted than employment. Around 73% of 18 to 24-year-olds voted to stay in the EU, but turnout among that group was lower than among older voters. “British Election Study surveys have suggested that, in order to have overturned the result, a startling 97% of under-45s would have had to make it to the ballot box, as opposed to the 65% who actually voted,” the report said.

Read more …

How China hides debt through swaps. As US and EU have done for ages now.

The GDP of Bridges to Nowhere (Michael Pettis)

In most economies, GDP growth is a measure of economic output generated by the performance of the underlying economy. In China, however, Beijing sets annual GDP growth targets it expects to meet. Turning GDP growth into an economic input, rather than an output, radically changes its meaning and interpretation. On January 18, 2018, China’s National Bureau of Statistics announced that the country’s GDP grew by 6.9% in 2017. A day earlier, the People’s Bank of China (PBoC) announced that total social financing (TSF) in 2017 had increased to 19.44 trillion renminbi.

[..] I was recently part of a discussion on a listserv that brings together Chinese and foreign experts to exchange views on China-related topics. What set off this discussion was a claim that the Chinese economy began to take deleveraging seriously in 2017. Everyone agreed that debt in China is still growing far too quickly relative to the country’s debt-servicing capacity, but the pace of credit growth seems to have declined in 2017, even as real GDP growth held steady and, more importantly, nominal GDP growth increased. I was far more skeptical than some others about how to interpret this data. It is not just the quality of data collection that worries me, but, more importantly, the prevalence in China of systemic biases in the way the data is collected. Not all debt is included in TSF figures. The table above, for example, indicates a fall in TSF in 2015, but this did not occur because China’s outstanding credit declined.

[..] in 2015 there was a series of debt transactions (mainly provincial bond swaps aimed at reducing debt-servicing costs and extending maturities) that extinguished debt that had been included in the TSF category and replaced it with debt not included in TSF. The numbers are large. According to the China Daily, there were 3.2 trillion renminbi worth of bond swaps in 2015, plus an additional 600 billion renminbi of new bonds issued. If we adjust TSF by adding these back, rather than indicate a decline of 6.4%, we would have recorded an increase of 15.7%. [..] The point is that the deceleration in credit growth implied by TSF data might indeed reflect the beginning of Chinese deleveraging, but it could also reflect the surge in regulatory concern. In the latter case, this would mean that China has experienced not the beginnings of deleveraging, but rather a continuation of the trans-leveraging observers have seen before.

Read more …

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


Horacio Coppola Obelisco, Buenos Aires 1936

 

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

 

 

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

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

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

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

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

Read more …

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

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

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

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

Read more …

Next recession: Dow plunge by 2/3.

Measure What Is Measurable (John Hussman)

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

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

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

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

Read more …

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

Global Bond Yields Spike as Inflation Fears Rise (Street)

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

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

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

Read more …

Yields go up, then so do mortgage rates.

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

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

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

Read more …

Why investigate Trump, but not Hillary et al?

Stormy Weather (Jim Kunstler)

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

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

Read more …

What Britain can quarrel about this week.

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

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

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

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

Read more …

After Janet, the flood.

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

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

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

Read more …

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

On The Death of Robert Parry (CJ)

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

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

Read more …

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

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

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

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

Read more …

Sep 142016
 
 September 14, 2016  Posted by at 9:24 am Finance Tagged with: , , , , , , , , , , ,  


LoC Old Patent Office model room, Washington DC 1865

The US Consumer Will Cause The Next Crisis (Vallee)
Shares Crumble As Oil Falls, Bond Yields Soar On Stimulus Doubts (R.)
How ‘Zombie’ Oil Companies Stay Alive in Life-or-Death Debt Markets (BBG)
Negative Rates May Do More Harm Than Good (BBG)
Why Democrats in Western Pennsylvania Are Voting Trump (Atlantic)
How Much It ‘Costs’ To Get An Ambassadorship (ZH)
Buffett Loses $1.4 Billion as Wells Fargo Tumbles on Scandal (BBG)
Hanjin Brings One of World’s Busiest Shipping Terminals to Near Standstill (BBG)
IMF’s Lagarde Slams Globalization (ZH)
Bayer To Announce Acquisition Of Monsanto On Wednesday (R.)
Hillary’s 9/11 “Medical Episode” Looks More Like Parkinson’s Than Pneumonia (ZH)
An ‘Amicable Divorce’ For The Eurozone? (Varoufakis)
Expel Hungary From EU For Hostility To Refugees, Says Luxembourg (G.)
Greece Has Exposed The NGO Aid Community’s Failures (G.)

 

 

If you still need this spelled out, this is quite good. Lots of graphs too.

The US Consumer Will Cause The Next Crisis (Vallee)

The market is materially mispricing the strength of the US consumer whose weakness will lead the US economy into a recession in Q117. The divergence is a result of the top 40% of earners who have accrued 84% of all new income and only 34% of new debt since 2013. This strength has driven headline sales figures and accounted for nearly all deleveraging since the financial crisis. That said, the market has extrapolated the health of top 40% to all consumers, as it corresponds to the current narrative of low unemployment and rising average hourly earnings leading to higher rates of consumption and balance sheet strength. Due to this misconception, we believe the market has overlooked the deterioration of lower and middle income households who have historically preceded the fall of the top. We see this disparity being corrected over the next 6-9 months, as a series of disappointing retail sales and consumption figures lead market participants to the realization that their thesis is imperfect.

Read more …

Markets won’t get quiet again at least before November 8, and more likely 2017.

Shares Crumble As Oil Falls, Bond Yields Soar On Stimulus Doubts (R.)

Asian stocks fell to fresh six-week lows on Wednesday and the greenback stood strong against a broad swathe of currencies including the Japanese yen as concerns grew about the fading impact of the world’s major central banks to stimulate growth. Losses in stock markets across Asia deepened as rising bond yields and soaring volatility forced investors to unwind positions. The MSCI’s broadest index of Asia-Pacific shares outside Japan slid 0.2%, extending its decline since late last week to 4.2%. Within the region, Japan’s Nikkei led losers with a 0.3% decline as uncertainty grew ahead of a central bank policy meeting next week. The BOJ plans to make its controversial negative interest rate policy the centerpiece of future monetary easing, promising to weigh further rate cuts as expansions to asset buying near their limits, the Nikkei newspaper reported on Wednesday.

“The moves in developed market fixed-income, which are largely behind the volatility, have stemmed from Japan and the potential changes in monetary policy,” said Chris Weston at IG Markets. “Secondly, some of the biggest systematic funds have had to alter their portfolios. The rest of the market participants have had to simply react.” Stock markets have come under pressure as investors cut positions after large inflows in recent weeks betting on a long period of low volatility and suppressed bond yields. Inflows into emerging market equity funds amounted to $24 billion dollars over the past 10 weeks, the highest on record according to Bank of America Merrill Lynch flow data. An index of market volatility soared to its highest level in three months.

Read more …

The refusal to restructure will come back to bite the US.

How ‘Zombie’ Oil Companies Stay Alive in Life-or-Death Debt Markets (BBG)

Beneath the surge in corporate defaults lies a surge in distressed exchanges. Such exchanges – defined by Moody’s as when a troubled company offers its lenders new or restructured debt, securities, cash, or other assets, that amount to a smaller commitment than the original IOU – could have big implications for debt markets as they stretch out the current credit cycle and result in even greater losses for investors. The trend is most apparent in the energy sector where oil and gas companies have been deploying a raft of creative measures to stay afloat amid lower crude prices that have crimped profits and threatened their survival. Such measures have included swapping unsecured debt for secured, offering discounted buybacks of existing debt, or junior-lien debt that gets paid after other creditors.

“While these [distressed exchanges] do result in some level of loss to bondholders, unlike missed payments and bankruptcy filings the bonds typically remain eligible for inclusion in the high-yield index,” Kai Gilkes and Anneli Lefranc, analysts at CreditSights, wrote in new research. They note that the 12-month default rate rose to 7.2% for U.S. junk-rated bonds in August. That’s an increase of 30 basis points compared to July’s default rate of 6.9%, spurred on by six corporate defaults last months – including a trio of U.S. energy companies. “Distressed exchanges have contributed greatly to the rise in default rates,” they add, with 38 of the 75 U.S. high-yield defaults over the last 12 months coming from such deals. The degree to which distressed exchanges are propelling defaults higher is apparent in the below CreditSights chart, which shows the U.S. and European default rate excluding the swaps.

The question now will be whether such exchanges actually help companies improve their balance sheets and reduce their debt long enough to enjoy a recovery in oil prices or the market’s appetite for energy-related assets. If they don’t, then truly troubled companies will only have succeeded in putting off the inevitable and their lenders risk suffering greater losses further down the line.

Read more …

You think? Again, there’s one solution only: take away central banks’ powers.

Negative Rates May Do More Harm Than Good (BBG)

The negative interest rate strategy that Japan and Europe’s central banks have embraced may do more harm than good, according to John Taylor, the creator of an eponymous rule for guiding monetary policy. “What we are learning is that, in my view, negative rates may not have helped and may have hurt,” Taylor, a professor at Stanford University in California, said in a telephone interview this week. “It could be counterproductive, no question.” A potential problem is that the strategy of charging banks for a portion of their reserves squeezes the availability of credit. Bank of Japan Governor Haruhiko Kuroda last week rejected the idea that the negative-rate policy adopted in January had hurt banks’ “intermediary functions” – their ability to channel savings to lending.

Even so, he acknowledged that the move had spurred a powerful drop in long-term yields. That, in turn, hurt earnings on savings including pensions, generating some risk for the “sustainability of the financial function in a broad sense.” “The macro models we have don’t really incorporate that financial-sector behavior, so it’s hard to give a magnitude to it,” Taylor said. While some companies may boost investment, others could pare it back, and saving rates could be affected, said Taylor, who served as the U.S. Treasury’s top international official from 2001 to 2005.

Read more …

Joe Bageant meets Brexit. Excellent from the Atlantic. Nothing learned from Project Fear that helped shape Brexit.

Why Democrats in Western Pennsylvania Are Voting Trump (Atlantic)

Lee Supply is a third-generation family-owned business, operating since 1954. “My dad started it servicing the coal industry,” Lee said. Nestled in a glen between the rolling hills of the Alleghenies and the Monongahela River, the company bustles with workers moving about the plant. Today, it sells pipe and pumping systems used in everything from traditional applications, such as water distribution and sewage treatment, to highly specialized applications such as horizontal directional drilling, slip lining, leachate and methane collection, gas extraction, and water transport. One man wearing a florescent-yellow Lee Supply safety shirt, with grease smudged on his arms and face, registered to vote for the first time in his 61 years.

His eyes watered as he put down the pen. “This is about me,” he said, declining to give his name. “I am doing this for me, my hometown.” “Sheik” Shannon, 55, a 17-year employee at the company, believes the political class fundamentally misunderstands what this election cycle is all about. “They think it is the celebrity of Trump. It’s not. They think we’ve all gone mad. We’ve not,” he said, emphasizing each sentence with passion. “Communities like where I live do not need to shutter and die. We lead solid, honest lives, we work hard, we play hard, we pray hard … we love where we are from, and we feel a duty to make sure that it is here for generations.” Paul Sracic, a Youngstown State University political scientist, believes there are two categories of voters rallying to support Trump.

“First, there are people who don’t normally vote,” he said. “Nearly half the voting-age population was either not registered to vote, or was registered and decided not to vote in 2012. And if even 10% of that group was to show up and vote this year, it could easily change the outcome in the important swing states.” Sracic—who frankly admits he obsesses over opinion polls—wonders whether these voters are even represented in the endless presidential surveys: “If people aren’t registered voters, they won’t be picked up by most polls. If they are registered voters but don’t normally vote, they may be eliminated by ‘likely voter’ screens pollsters use.” Romney lost Pennsylvania in 2012 by about 300,000 votes out of about 5.5 million cast; in Ohio, he lost by less than 200,000. “So bringing new people in can make a difference,” Sracic said.

Potentially more significant, however, are those voters who “flip”—Sracic’s second category. “Remember,” he said, “taking a Democratic voter and having them vote Republican is both a +1 and a -1. In other words, if Romney lost Pennsylvania by 300,000 voters, all you have to do [this time] is flip slightly more than 150,000 votes.” Between Ohio and Pennsylvania, if approximately 225,000 voters (out of the 11 million who are expected on Election Day) switch parties, they could tip the entire election.

Read more …

For names, amounts and photos click the link.

How Much It ‘Costs’ To Get An Ambassadorship (ZH)

After addressing a cybersecuirty conference in London, notorious hacker ‘Guccifer’ shared over 500Mb of documents detailing 100,000 DNC donors contact info and donations. A large number of the largest donors received senior diplomatic or political positions following thge donations, ranging from UK Ambassador to Assistant Attorney General. The DNC released a statement pre-emptively claiming that this was the work of Russia (and reigniting Trump’s links to Putin). Probably just coincidence… The dcoments contained detailed lists of 100,000 alledged donors, addresses, and phone numbers, and well as amounts donated…

[..] The DNC responded to the latest hack claim Tuesday through its Interim Chair Donna Brazile, who stated that the “DNC is the victim of a crime,” which she blamed on “Russian state-sponsored agents,” while also cautioning that the hacked documents were still being authenticated by the DNC legal team, as “it is common for Russian hackers to forge documents.” DNC pre-emptively published a statement in an attempt to change the narrative… [..] Once again blaming Russia (and Trump)… As RT reports, it’s not the first time that the name of Vladimir Putin has been brought up in the US presidential campaign, but this time the US president used this “argument” while openly campaigning for Clinton against Trump. The situation has become “really ludicrous and it borders on the ridiculous,” believes Gregory R. Copley, editor of Defense & Foreign Affairs.

“In my 50 odd years covering the US government, I have never seen this level of partisanship within the administration where a sitting president actually regards the opposition party as the enemy of the state,” Copley told RT. [..] The US establishment is “sacrificing key bilateral relationships in order to win [a] domestic election,” believes Copley. He added that neither Obama nor Clinton are interested in unifying the country, but they are rather “interested in winning and engaging in what modern democracy seems to have become – the tyranny of the marginal majority over the marginal minority.”

“When you think about the number of times that the Clinton campaign has brought up President Putin and the alleged Russian hacking of Hillary Clinton’s service, it makes you wonder just how desperate they are,” Copley noted. “President Obama has lost literally all prestige in an international community…with the loss of prestige he has become desperate.”

Read more …

Is there anything more boring in the world than billionaires?

Buffett Loses $1.4 Billion as Wells Fargo Tumbles on Scandal (BBG)

Warren Buffett had $1.4 billion wiped from his fortune Tuesday after Wells Fargo fell 3.3% as the fallout continued from revelations that bank employees had opened more than 2 million accounts without clients’ approval. Berkshire Hathaway, the lender’s biggest shareholder, fell 2%, causing the 86-year-old’s fortune to drop more than anyone else’s on the Bloomberg Billionaires Index. The U.S. investor is the world’s fourth-richest person with a net worth of $65.8 billion. Tuesday’s decline came amid a global equity sell off that has wiped out $93 billion from the world’s 400 biggest fortunes since Friday. The billionaires shed $37.3 billion Tuesday as stocks and bonds both slumped, and oil sank after the IEA’s prediction that a glut will extend into next year.

The world’s second-richest person, Inditex founder Amancio Ortega, leads the 400 richest people with a decline of $3.3 billion since the sell off began, according to the index. Microsoft co-founder Bill Gates, the world’s richest person with $87.3 billion, has lost $2.4 billion. Amazon founder Jeff Bezos, the world’s third-richest person with $66.2 billion, has shed $1.9 billion. Buffett, whose fortune is mostly in Berkshire shares, has lost $1.6 billion in the sell off. Wells Fargo was overtaken by JPMorgan as the world’s most valuable bank on Tuesday. It has fallen 5.9% since Thursday, when the Consumer Financial Protection Bureau announced fines stemming from the fake accounts. The drop since Thursday compares with a 2.5% fall for the Standard & Poor’s 500 Index.

Read more …

Good example of why systems need redundancy, but don’t have it.

Hanjin Brings One of World’s Busiest Shipping Terminals to Near Standstill (BBG)

The Hanjin Shipping Co. terminal at South Korea’s largest port used to be one of the world’s busiest. Dozens of container carriers would line up to ferry boxes to and from the giant cranes that loaded and unloaded the world’s biggest ships.
Last week the terminal, as big as 100 football fields, came to a virtual standstill. In front of hundreds of containers stacked four-high, Seo Seong Deok, a 35-year-old driver of the port tractors, wondered if he would ever get to move them again. “We have no work now,” said Seo, one of about 1,000 tractor drivers without work. “This Hanjin terminal used to be always bustling with trucks and ships. Now, I heard some fresh food such as mango or banana is rotting in Hanjin container ships drifting somewhere in the ocean.”

Since the world’s seventh-largest container line filed for protection from creditors on Aug. 31, the port has been paralyzed as unshipped boxes piled up. The collapse has come at the worst time: September is peak season for the industry as manufacturers look to stock store shelves for holidays like Thanksgiving and Christmas. Port officials say cargo owners have been scrambling to find alternative ways to send goods. The port in Busan, on the tip of the Korean peninsula about 200 miles southeast of Seoul, handles more than 70% of the containers that enter or leave South Korea, according to local government data. Until last week, Hanjin alone accounted for about 10% of goods that flow through its wharves. “The biggest concern is Busan losing its longtime reputation as a maritime hub in Asia,” said Kim Kyu-Ok, the city’s vice mayor for economic affairs. Hanjin’s collapse “could make ship owners shun Busan.”

Read more …

A good take from Tyler: turn Christine on her head.

IMF’s Lagarde Slams Globalization (ZH)

Two months after consultancy giant McKinsey dramatically flip-flopped on its long held position of praising globalization, cautioning that – as Britain’s vote to exit the European Union exemplified what happens when people feel like the system is letting them down – the system is on the verge of “explosion”, comparing the buildup of resentment over globalization to a dangerous natural gas leak in a row of houses, today it was the IMF’s turn. In a speech titled “Making Globalisation Work For All”, IMF managing director Chrstine Lagarde became the latest in a growing chorus of senior policymakers urging governments to take heed of rising discontent and economic insecurity in the advanced world.

Lagarde said that governments in the developed world should focus their attention on boosting support for low income workers and reducing inequality, amid a “groundswell of discontent” against globalisation. Effectively reiterating the McKinsey report, Lagarde said that there is “a growing sense among some citizens that they “lack control,” that the system is somehow against them”, a system which she now slams, even though the IMF been instrumental in helping create and grow precisely this system ever since its inception, saying that “growing inequality in wealth, income, and opportunity in many countries has added to a groundswell of discontent, especially in the industrialized world.” She then slammed both banks, tax regimes and pervasive corruption, saying that “financial institutions are being seen as unaccountable to society. Tax systems allow multinational companies and wealthy individuals not to pay what many would consider a fair share. Corruption remains endemic.”

Last but not least she warned about the “challenge” from migration flows: And there is the challenge from uncontrolled migration flows, contributing to economic and cultural anxieties.” To be sure, Lagarde did have some kinds words for globalisation, highlighting the opening up of world trade and the entry of the likes of China and India into the global economy, which has had “far reaching effects” for low-income workers in the likes of Europe and the US, however even here she highlighted the negatives saying that “the size of the global workforce effectively doubled, putting downward pressure on wages, especially for lower-skilled workers in advanced economies…. Some local labour markets that have faced deep, long-lasting effects from overseas competition.” We are confident this is a bullet point that Trump will be delighted to use during the upcoming debates.

Read more …

This is very dangerous. We should not allow it.

Bayer To Announce Acquisition Of Monsanto On Wednesday (R.)

Chemicals and healthcare group Bayer is poised to announce the acquisition of U.S. seeds company Monsanto on Wednesday for more than $66 billion, clinching the biggest deal of the year, people familiar with the matter said. By accepting Bayer’s offer, the largest cash acquisition proposal on record, Monsanto is set to give the German company a shot at grabbing the top spot in the fast-consolidating farm supplies industry, combining its crop science business with Monsanto’s strength in seeds. It will also set the stage for the deal to be closely scrutinized by antitrust regulators. The breakthrough in negotiations, which follows more than four months of talks, came after Bayer further improved on the sweetened offer of $127.50 per share in cash it disclosed last week, the people said.

However, the deal will still value Monsanto at less than $130 per share, which the company was previously hoping to fetch, the people added. Once Monsanto’s board of directors approves the deal on Tuesday, Bayer’s supervisory board will meet on Wednesday to also authorize the transaction, with an announcement expected before the stock market opens in New York on Wednesday. It is still possible the board of either company could decide to walk away from the deal at the last minute, the people cautioned. Bayer’s bid to combine its crop chemicals business, the world’s second-largest after Syngenta, with Monsanto’s industry leading seeds business, is the latest in a series of major consolidation moves in the agrochemical sector. U.S. chemicals giants Dow Chemical and DuPont have agreed to merge and spin off their respective seeds and crop chemicals operations into a major agribusiness.

Read more …

I don’t want to get into this too much, but the good doctor makes a convincing case.

Hillary’s 9/11 “Medical Episode” Looks More Like Parkinson’s Than Pneumonia (ZH)

A few weeks back, Dr. Ted Noel, an anesthesiologist with 36 years of experience, gained notoriety by sharing his opinion on his website, Vidzette, that Hillary likely had Parkinson’s disease. Now, Dr. Noel has posted a new video in which he explains how Hillary’s behavior on 9/11 and the subsequent decisions made by her campaign staff and secret service detail are more consistent with Parkinson’s disease than pneumonia. Among other things, Noel points out that if Hillary actually was suffering from such a severe case of pneumonia that it forced her to literally collapse on a sidewalk, it’s extremely unlikely that she could make a seemingly full recovery after only 90 minutes at Chelsea’s apartment and feel well enough to great onlookers and snap a selfie with a child.

Per Noel, Hillary’s recovery timing is more consistent with how long it would take her to ingest a dosage of Levodopa and wait for her Parkinson’s symptoms to subside. Noel also points out that sunglasses with dark blue lenses, like the ones Hillary wore this weekend despite the cloud cover, have been noted by doctors to help treat patients with major motion disorders such as Parkinson’s disease. With that preview, here is the full analysis

Read more …

I’m looking at doing another article on the political restraints on an EU ‘redesign’. Wrote on that years ago, don’t know if I can find any of it back. Nothing much has changed, other than tensions have increased.

Yanis looks at the economic/financial side. I think I’m more convinced that a ‘divorce’ is inevitable than he is, ugly as it may be.

An ‘Amicable Divorce’ For The Eurozone? (Varoufakis)

Stefano Fassina points out that in my article ‘Europe’s Left After Brexit’ I did not discuss his preferred option for Eurozone member-states: Stay in the EU but leave the euro. Of course the reason my article did not discuss that position is that it was focusing on Brexit and addressing Lexiteers like Tariq Ali and Stathis Kouvelakis who are arguing, from a left-wing position, for leaving the EU altogether – i.e. Brexit-like moves. But I am more than happy to comment on Stefano’s preferred option (In the EU, Out of the Euro) here. Stefano invokes Joe Stiglitz who, in his recent book on the euro, recommends an ‘amicable divorce’ that would lead to the creation of at least two new currencies (one for the deficit and one for the surplus countries).

Since I have recently discussed this with Joe Stiglitz it is perhaps useful to share the gist of our discussion with Stefano and our readers. In my email to Joe, I expressed scepticism that an ‘amicable divorce’ is at all possible. The moment it becomes public that a ‘divorce’ is under discussion, a wall of money will leave the banks of the countries destined for devaluation, heading for Frankfurt. At that point, the banks of the deficit member-states will collapse (as they run out of ECB-acceptable collateral) and the member-states will impose stringent currency and capital controls – complete with officials at airports checking suitcases and/or harsh limits in cash withdrawals. This would spell the end not only of monetary union but also of (the already injured) Schengen Treaty.

Meanwhile, as bank deposits are being redenominated, huge assets belonging to the Bundesbank and the central banks of other surplus countries (e.g. the Netherlands), which are the liabilities of the deficit countries, will disappear, causing an uproar of indignation in Germany and the Netherlands. Under such circumstances, and given the already advanced stage of the EU’s disintegration, it is almost certain that the dissolution of the Eurozone will be anything but amicable. Joe Stiglitz responded to me thus: “You are absolutely right that the moment any country contemplated leaving, capital controls would have to be imposed… The rush out will occur presumably before–when a party advocating a referendum looks like it might win.

So the hard decisions about imposing capital controls are likely to be faced ironically by a pro-Euro government. If it delays, by the time the election occurs, the country may be in shambles. The picture ahead for Europe is not a pretty one.” In conclusion, it is a fantasy to think that the EU can oversee an amicable disintegration of the Eurozone. Indeed, it is hard to imagine the EU surviving a Eurozone breakdown.

Read more …

Yeah, about that EU divorce…

Expel Hungary From EU For Hostility To Refugees, Says Luxembourg (G.)

Luxembourg’s foreign minister has called for Hungary to be thrown out of the EU over its increasingly hostile approach to refugees, as campaigners accuse Viktor Orbán’s hardline government of whipping up xenophobia to block a European plan to relocate asylum seekers. Jean Asselborn said Hungary should be temporarily or even permanently expelled from the EU for treating asylum seekers “worse than wild animals”. In an interview with German daily Die Welt, he said: “Anyone who, like Hungary, builds fences against refugees from war or who violates press freedom and judicial independence should be excluded temporarily, or if necessary for ever, from the EU.”

Asselborn called for EU rules to be changed to make it easier to expel Hungary as this was “the only way of preserving the cohesion and values of the EU”. Hungary’s foreign affairs and trade minister Péter Szijjártó dismissed Asselborn as “an intellectual lightweight” and his comments as “sermonising, pompous and frustrated”. He said only Hungarians have the right to decide who they wish to live with, adding that no Brussels bureaucrat can deprive them of this right. In a statement issued by the Hungarian government, Szijjártó added: “It is somewhat curious that Jean Asselborn and Jean-Claude Juncker – who both come from the country of tax optimisation – speak about jointly sharing burdens. But we understand what this really means: Hungary should take on the burden created by the mistakes of others.”

Read more …

This is what I have observed in Greecem, and why I support Konstantinos so strongly. His is the much better model for aid, not the massive overhead NGO one. But they get the millions, and he gets nothing, except from the Automatic Earth and a few minor other sources. NGOs have become corporations entrenched in a system that’s as expensive as it is a failure. And guess who the victims of this failure are?

Greece Has Exposed The NGO Aid Community’s Failures (G.)

The aid community has over many years developed a habit of finding reasons for why the school was not built in the Afghan village, why the women’s agricultural businesses never made any profits, why the toilets took three months to set up in the refugee camp. When it comes to our shortcomings, we have become very comfortable with, and rely upon the shopping list of excuses that we find ourselves using in Haiti, Afghanistan, Iraq, the Democratic Republic of Congo and the other contexts we’re flown into. The humanitarian excuses list includes, but is not limited to: a fragile context, ongoing war and conflict, poor infrastructure, a corrupt government, dictatorship (current or past), insufficient funding, and values that are not akin to our own.

Or if all else fails, that other favourite go-to, the overwhelming scale and number of people, such as the 1,033,513 registered Syrian refugees in Lebanon, 655,990 Syrian refugees in Jordan or 3.9 million internally displaced people in Iraq. But in Greece we are without the humanitarian excuse list to fall back on. The aid community has already received €83m to improve conditions for refugees in Greece with €214m to come from the European Commission alone in the next few months. This makes it hard to suggest we are underfunded, especially when you look at the scale of the crisis. At the time of writing, the number of refugees in Greece is approximately 60,000. The problem is not overwhelming. This time we are in an EU country.

I feel safe wherever I am – this means I can conduct a visit to monitor the impact of a programme or ensure I am consulting refugees about what they want. But I don’t, because it is something we have talked about but not done for many years, and there is little pressure to change. The disconnect between the sector’s standards and the reality on the ground is more stark here than in any other mission I’ve been involved in. We have historically been unaccountable, failing to sufficiently consult and engage affected communities. In Greece we are continuing to operate in the same ways as before, but without the traditional excuses to rely on.

Across Greece there are volunteers working both independently and as organised groups, meeting needs and filling gaps. They take over abandoned buildings to ensure refugees have somewhere to sleep, provide additional nutrition to pregnant and breastfeeding women, organise and manage informal education programmes, including setting up schools inside camps. All of this while INGO staff sip their cappuccinos in countless coordination meetings – for cash distribution, protection, water, sanitation and hygiene, food distribution and child-protection.

Read more …

Aug 082016
 
 August 8, 2016  Posted by at 9:20 am Finance Tagged with: , , , , , , , , ,  


NPC Dr. H.W. Evans, Imperial Wizard 1925

The US Market Has Been And Remains Today, The Last Ponzi Game Standing (Adler)
Priced Out Of The ‘Open Society’ (McKenna)
Shrinking Imports And Exports—A Far More Meaningful Counterpoint To BLS (Alh.)
China’s July Exports, Imports Fall More Than Expected (R.)
China Crude Imports Fall to 6-Month Low, Fuel Exports Surge (BBG)
China’s Great River of Steel Swells as Trade Tensions Build (BBG)
Draghi Jumps Brexit Hurdle to Find Oil Damping Price Outlook (BBG)
Bond Market’s Big Illusion Revealed as US Yields Turn Negative (BBG)
China’s Marshall Plan (BBG)
Earnings Beats Are Concealing Bad Results (MW)
We’re in a Low-Growth World. How Did We Get Here? (NYT)
Musical Chairs in a Depression (Thomas)

 

 

Great piece from Lee Adler. “It’s abstract impressionism. It’s a joke.”

The US Market Has Been And Remains Today, The Last Ponzi Game Standing (Adler)

I’m not here to argue whether the July report was lousy or not. The US economy may well be spawning big numbers of crappy low paying jobs. Withholding tax collections were huge in the last 4 weeks of July. We know that that didn’t come from big wage gains by existing workers. They’re running at about a 2.5% annual growth rate. So when tax collections increase by a significant margin over a similar period a year ago, it suggests that there were new jobs, maybe a lot of them. I’m also not here to argue that the headline number bears any semblance of reality. The headline number is the seasonally adjusted month to month gain in the estimated number of jobs. The whole process of seasonal adjustment is a bogus attempt to smooth a jagged trend with peaks and valleys into a continuous modified moving average.

The number is a fiction. Because it’s based on a moving average it has a built in lag, for which statisticians try to compensate with a bunch of statistical hocus pocus. That includes constantly revising the number based first on subsequent surveys, and then on benchmarking the data with actual tax collections in the 5 subsequent years. Not only is the number revised twice after the first month it’s issued, but it’s then fit to the curve of actuality for the next 5 years until the reading is finalized. July’s reading won’t be final until July 2021. The process is really “seasonal finagling.” It’s abstract impressionism. It’s a joke. What I have come to argue here is that the not seasonally adjusted (NSA) numbers, which I have always relied upon in my analysis of the jobs trend, is probably also a joke.

Look at this chart. Do those railroad tracks look like the real world to you, or are these some kind of computer generated auto-numbers that merely make a pretense of reality. Law of Large Numbers or not, I have never seen any other economic series behave with such regularity. This is a joke, a farce, a sham. But it doesn’t matter because the economy doesn’t matter. The world’s central banks have attempted, and largely succeeded, in rigging the financial markets. One of the consequences, intended or unintended, is that the bulk of the benefit of that rigging flows to the US financial markets. That has been so been since 2009. The US market has been and remains today, the Last Ponzi Game Standing. All roads lead to the US.

Read more …

Saxo Bank’s Mike McKenna comments on an Economist cheerleading piece on ‘Open Society’, which somehow -presumably because it sounds positive- has become synonymous to globalization. McKenna’s conclusion: the world can’t afford globalization. Which is what I’ve been saying: without growth there can be no centralization. The Saxo boys seem to think that a return to growth is still possible/desirable. I think not.

Priced Out Of The ‘Open Society’ (McKenna)

The biggest problem facing globalism, however, is neither its hypocrisy nor its will-to-power – these are ordinary human failings common to all ideologies. Its biggest problem is much simpler: it’s very expensive. The world has seen versions of the wealthy, cosmopolitan ideal before. In both Imperial Rome and Achaemenid Persia, for example, societies characterised by extensive trade networks, multicultural metropoli and the rule of law (relative to the times) eventually succumbed to rampant inequality, inter-community strife, and expensive foreign wars in the case of Rome and a death-spiral of economic stagnation and constant tax hikes in the case of Persia.

It seems near-axiomatic that, in the absence of the sort of strong GDP growth that characterised the post-World War Two era, the pluralist ideal might begin to show strains along the seams of its own construction. Such strains can be inter-ethnic, ideological, religious, or whatever else, but the legitimacy of The Economists’s favoured worldview largely came about due to the wealth and living standards it was seen to provide in the post-WW2 and Cold War era. Now that this is beginning to falter, so too are the politicians and institutions that have long championed it. In Jakobsen’s view, the rising tide of populist nationalism is in no way the solution, but it is a sign that globalisation’s elites have grown distant from the population as a whole.

“The world has become elitist in every way,” says Saxo Bank’s chief economist. “We as a society have to recognise that productivity comes from raising the average education level… the key thing here is that we need to be more productive. If everyone has a job, there is no need to renegotiate the social contract.” Put another way, would the political careers of Trump, Le Pen, Viktor Orban, and other such nationalist leaders be where they are if the post-crisis environment had been one of healthy wage growth, inflation, an increase in “breadwinner” jobs, and GDP expansion?

Read more …

Globalization crashing head first into its inherent limits.

Shrinking Imports And Exports—A Far More Meaningful Counterpoint To BLS (Alh.)

In the first six months of 2005, the US imported 27.2% more in Chinese goods than the first six months of 2004, and that was 28.8% more than the first six months of 2003. In the first six months of 2016, the US imported 6.5% less than the first six months of 2015, itself only 6.1% more than the first six months of 2014. The US actually imported slightly less from China so far this year than two years ago.

As we know very well from US production levels it’s not as if some native “buy American” grassroots opposition has successfully convinced American buyers to ditch the cheaper Chinese alternatives, redistributing “strong” consumer spending toward American products. There is much less goods being produced and traded with and within the United States – alarmingly so. Further, as you can see above and below, the timing of this most recent change from plain weakness to dangerous weakness is significant.

Starting September 2015, meaning dating back to August, US imports from China have dropped off a cliff. While year-over-year growth was slightly positive in September, it has been negative in every month since except February 2016 and that was due to calendar effects here and holiday weeks there (and was easily wiped out by the massive contraction in March). The mainstream reading of the payroll reports up to that point indicated that US demand would and should be nothing but strong. Instead, it has been much worse than it already was.

It isn’t just China that is feeling the increasing absenteeism of the US consumer. US imports from Europe contracted for the third straight month, where the -1.8% 6-month average is the lowest since 2010 and the initial recovery from the Great Recession. Imports from Japan were up for the first time in three months, but overall for the first half of 2016 are down nearly 5% in total.

Read more …

But that’s only due to who does the ‘expecting’.

China’s July Exports, Imports Fall More Than Expected (R.)

China’s exports and imports fell more than expected in July in a rocky start to the third quarter, suggesting global demand remains weak in the aftermath of Britain’s decision to leave the EU. Exports fell 4.4% from a year earlier, the General Administration of Customs said on Monday, while adding that it expects pressure on exports is likely to ease at the beginning of the fourth quarter. Imports fell 12.5% from a year earlier, the biggest decline since February, suggesting domestic demand remains sluggish despite a flurry of measures to stimulate growth. That resulted in a trade surplus of $52.31 billion in July, versus a $47.6 billion forecast and June’s $48.11 billion.

Read more …

Trying to keep the teapots alive…

China Crude Imports Fall to 6-Month Low, Fuel Exports Surge (BBG)

China’s crude imports fell to the lowest level in six months as demand from independent refineries eased. Net fuel exports surged to a record. The world’s biggest energy user imported 31.07 million metric tons of crude in July, according to data released by the General Administration of Customs on Monday. That’s about 7.35 million barrels a day, the slowest pace since January. Meanwhile, net fuel exports jumped to 2.49 million tons last month.

The nation’s appetite for overseas crude, which increased 14% in the first half year from the same period of 2015, may be weaker in the near term as insufficient infrastructure and scheduled maintenance at some independent refiners will likely hinder their crude purchases, BMI Research said in a report dated Aug. 4. “Teapots’ crude buying has slowed in the third quarter amid maintenance,” Amy Sun, an analyst with ICIS China, said before data were released. “Some plants have also seen their crude-import quotas filling up.”

Read more …

They have no intention of halting this either.

China’s Great River of Steel Swells as Trade Tensions Build (BBG)

There’s a river of steel flooding from China despite the best efforts of governments around the world to dam the flow from the world’s top producer, with data on Monday showing that overseas shipments held above 10 million tons in July. Sales increased 5.8% on-year to 10.3 million metric tons last month, compared with 10.9 million tons in June, according to China’s customs administration. Exports in the first seven months expanded 8.5% to 67.4 million tons, a record volume for the period. That’s in line with what South Korea, the world’s sixth-largest producer in 2015, makes in an entire year.

The robust export showing by China’s mills contrasts with the country’s broader performance last month, which fell in dollar terms, and risks further stoking trade tensions with partners from India to Europe after they imposed curbs to keep out the alloy. Premier Li Keqiang has defended the country’s growing presence in overseas steel markets, saying last month that overcapacity isn’t the fault of a single country. “Orders from abroad have held up relatively well as steelmakers in China have a cost advantage,” Dang Man, an analyst at Maike Futures Co. in Xi’an, said before the data. “Attention is still on global trade friction as the number of cases against Chinese exports is quite large.”

Read more …

The graph illustrates one thing alright. Food, Alcohol and Tobacco prices rise only because of taxes. That suggests governments could get rid of deflation just by raising taxes. Which, really, is nonsense. Therefore, so is the graph and the methodology it is based on. Rising prices don’t equal inflation.

Draghi Jumps Brexit Hurdle to Find Oil Damping Price Outlook (BBG)

Whenever Mario Draghi clears a hurdle on his path to higher inflation, a new one appears. Just as the 19-nation economy sends encouraging signals that challenges from Brexit to terrorism won’t derail the modest recovery, a new decline in oil prices is casting a shadow over an expected pick-up in inflation. With growth not strong enough to generate price pressures, the ECB president may have to revise his outlook yet again. Inflation remains far below the ECB’s 2% goal after more than two years of unprecedented stimulus and isn’t seen reaching it before 2018.

Staff will begin to draw up fresh forecasts in mid-August, and while officials are in no rush to adjust or expand their €1.7 trillion quantitative-easing plan in September, economists predict Draghi will have to ease policy before the end of the year. “Now that the euro-area economy seems to have shrugged off the Brexit vote, focus will again shift on inflation, against the background of those negative news from oil prices,” said Johannes Gareis, an economist at Natixis in Frankfurt. “Yes, the ECB has managed to dispel deflation fears, but all the uncertainty means inflation will stay lower for longer – and Draghi will have to take notice.”

Read more …

Maybe Zimbabwe bonds still offer some yield?

Bond Market’s Big Illusion Revealed as US Yields Turn Negative (BBG)

For Kaoru Sekiai, getting steady returns for his pension clients in Japan used to be simple: buy U.S. Treasuries. Compared with his low-risk options at home, like Japanese government bonds, Treasuries have long offered the highest yields around. And that’s been the case even after accounting for the cost to hedge against the dollar’s ups and downs – a common practice for institutions that invest internationally. It’s been a “no-brainer since forever,” said Sekiai, a money manager at Tokyo-based DIAM. That truism is now a thing of the past. Last month, yields on U.S. 10-year notes turned negative for Japanese buyers who pay to eliminate currency fluctuations from their returns, something that hasn’t happened since the financial crisis.

It’s even worse for euro-based investors, who are locking in sub-zero returns on Treasuries for the first time in history. That quirk means the longstanding notion of the U.S. as a respite from negative yields in Japan and Europe is little more than an illusion. With everyone from Jeffrey Gundlach to Bill Gross warning of a bubble in bonds, it could ultimately upend the record foreign demand for Treasuries, which has underpinned their seemingly unstoppable gains in recent years. “People like a simple narrative,” said Jeffrey Rosenberg at BlackRock. “But there isn’t a free lunch. You can’t simply talk about yield differentials without talking about currency differentials.”

Read more …

Imagine the enormous amounts of debt that would be involved in this. Then look at China’s current debt. Then draw your conclusions. More globalization nonsense. The next Chinese bubble.

China’s Marshall Plan (BBG)

China’s ambition to revive an ancient trading route stretching from Asia to Europe could leave an economic legacy bigger than the Marshall Plan or the EU’s enlargement, according to a new analysis. Dubbed ‘One Belt, One Road,’ the plan to build rail, highways and ports will embolden China’s soft power status by spreading economic prosperity during a time of heightened political uncertainty in both the U.S. and EU, according to Stephen L. Jen, CEO at Eurizon SLJ Capital, who estimates a value of $1.4 trillion for the project. It will also boost trading links and help internationalize the yuan as banks open branches along the route, according to Jen.

“This is a quintessential example of a geopolitical event that will likely be consequential for the global economy and the balance of political power in the long run,” said Jen, a former IMF economist. Reaching from east to west, the Silk Road Economic Belt will extend to Europe through Central Asia and the Maritime Silk Road will link sea lanes to Southeast Asia, the Middle East and Africa. While China’s authorities aren’t calling their Silk Road a new Marshall Plan, that’s not stopping comparisons with the U.S. effort to rebuild Western Europe after World War II. With the potential to touch on 64 countries, 4.4 billion people and around 40% of the global economy, Jen estimates that the One Belt One Road project will be 12 times bigger in absolute dollar terms than the Marshall Plan.

China may spend as much as 9% of GDP – about double the U.S.’s boost to post-war Europe in those terms. “The One Belt One Road Project, in terms of its size, could be multiple times larger and more ambitious than the Marshall Plan or the European enlargement,” said Jen. It’s not all upside. Undertaking an expansive plan like this one will inevitably run the risk of corruption, project delays and local opposition. Chinese backed projects have frequently run into trouble before, especially in Africa, and there’s no guarantee that potential recipient nations will put their hand up for the aid. In addition, resurrecting the trading route will need funding during a time of slowing growth and rising bad loans in the nation’s banks. Sending money abroad when it’s needed at home may not have an enduring appeal.

Still, at least China has a plan. “The fact that this is a 30-40 year plan is remarkable as China is the only country with any long-term development plan, and this underscores the policy long-termism in China, in contrast to the dominance of policy short-termism in much of the West,” said Jen. And that’s a win-win for soft power. “The One Belt One Road Project could be a huge PR exercise that could win over government and public support in these countries,” he said.

Read more …

“The beat on earnings is due at least in part to negative earnings revisions heading into earnings season, similar to what we have seen for the last 29 quarters..”

Earnings Beats Are Concealing Bad Results (MW)

Investors shouldn’t be fooled by this season’s “better-than-expected” earnings—they are still pretty bad. With nearly 90% of the S&P 500 companies having reported second-quarter results through Friday morning (437 out of 505), aggregate earnings-per-share for the group are on course to decline 3.5% from a year ago, according to FactSet. Many Wall Street strategists are pleased, because that is a lot better than expectations of a 5.5% decline on June 30, just before earnings reporting season kicked off. So are investors, as the S&P and Nasdaq Composite Index closed in record territory Friday, and the Dow Jones Industrial Average closed less than 0.3% away. But that is like saying you should be happy with the “D” you got, because it would really be a “B” if the teacher changed the scale to grade on a curve.

“The beat on earnings is due at least in part to negative earnings revisions heading into earnings season, similar to what we have seen for the last 29 quarters with aggregate upside to expectations,” Morgan Stanley equity strategists wrote in a recent note to clients. Earnings might be beating lowered expectations, but they are still worse than the aggregate FactSet consensus of a 3.1% decline at the end of the first quarter on March 31. It also means S&P 500 earnings will suffer the fifth-straight quarter of year-over-year declines, the longest such streak since the five-quarter stretch from the third quarter of 2008 through the third quarter of 2009, the heart of the Great Recession.

Read more …

By fooling ourselves into thinking we’d never get there again?

We’re in a Low-Growth World. How Did We Get Here? (NYT)

One central fact about the global economy lurks just beneath the year’s remarkable headlines: Economic growth in advanced nations has been weaker for longer than it has been in the lifetime of most people on earth. The United States is adding jobs at a healthy clip, as a new report showed Friday, and the unemployment rate is relatively low. But that is happening despite a long-term trend of much lower growth, both in the United States and other advanced nations, than was evident for most of the post-World War II era. This trend helps explain why incomes have risen so slowly since the turn of the century, especially for those who are not top earners. It is behind the cheap gasoline you put in the car and the ultralow interest rates you earn on your savings.

It is crucial to understanding the rise of Donald J. Trump, Britain’s vote to leave the European Union, and the rise of populist movements across Europe. This slow growth is not some new phenomenon, but rather the way it has been for 15 years and counting. In the United States, per-person gross domestic product rose by an average of 2.2% a year from 1947 through 2000 — but starting in 2001 has averaged only 0.9%. The economies of Western Europe and Japan have done worse than that. Over long periods, that shift implies a radically slower improvement in living standards. In the year 2000, per-person G.D.P. — which generally tracks with the average American’s income — was about $45,000.

But if growth in the second half of the 20th century had been as weak as it has been since then, that number would have been only about $20,000. To make matters worse, fewer and fewer people are seeing the spoils of what growth there is. According to a new analysis by the McKinsey Global Institute, 81% of the United States population is in an income bracket with flat or declining income over the last decade. That number was 97% in Italy, 70% in Britain, and 63% in France.

Read more …

“Since 2007, the world has been in an unacknowledged depression.”

Musical Chairs in a Depression (Thomas)

Economics is a bit like musical chairs. In a recession, the economy takes a hit and there are some casualties. Some players fail to get a chair in time and are out of the game. The game then goes on without them. The economy eventually recovers. But a depression is a different game entirely. Since 2007, the world has been in an unacknowledged depression. A depression is like a game of musical chairs in which ten children are walking around, but suddenly nine of the chairs are taken away. This means that nine of the children will soon be out of the game. But it also means that all ten understand that the odds of them remaining in the game are quite slim and that desperate times call for desperate measures. It’s time to toss out the rule book and do whatever you have to, to get the one remaining chair.

Of course, the pundits officially deny that we have even been in a depression. They regularly describe the world as “in recovery from the 2008–2010 recession,” but the “shovel-ready jobs” that are “on the way” never quite materialize. The “green shoots” never seem to blossom. So, what’s going on here? Depressions do not occur all at once. It takes time for them to bottom and, if an economy is propped up through economic heroin (debt), the Big Crash can be a long time in coming. In that regard, this one is one for the record books. As Doug Casey is fond of saying, a depression is like a hurricane. First there are the initial crashes, then a calm as the eye of the hurricane passes over, then, we enter the trailing edge of the other side of the hurricane.

This is the time when things really get rough—when even the politicians will start using the dreaded “D” word. We have entered that final stage, as the economic symptoms demonstrate, and this is the time when the game of musical chairs will evolve into something quite a bit nastier. In normal economic times, even including recession periods, we observe financial institutions maintaining their staunchly conservative image. For the most part, they deliver as promised. But, as we move into the trailing edge of the second half of the hurricane, we notice more and more that the bankers are rewriting the rule book in order to take possession of the wealth that they previously held in trust for their depositors.

And they don’t do this in isolation. They do it with the aid of the governments of the day. New laws are written in advance of the crisis period to assure that the banks can plunder the deposits with impunity. Since 2010, such laws have been passed in the EU, the US, Canada and other jurisdictions. Trial balloons have been sent up to ascertain to what degree they will get away with their freezes and confiscations. Greece has been an excellent trial balloon for the freezes and Cyprus has done the same for the confiscations. The world is now as ready as it’s going to be for the game to be played on an international level.

So what will it look like, this game of musical chairs on steroids? Well, first we’ll see the sudden crashes of markets and/or defaults on debts. Shortly thereafter, one Monday morning (or more likely one Tuesday after a long weekend) the financial institutions will fail to open their doors. The media will announce a “temporary state of emergency” during which the governments and banks must resolve some difficulties in order to “assure a continued sound economy.” Until that time, the banks will either remain shut, or will process only small transactions.

Read more …

Aug 022016
 
 August 2, 2016  Posted by at 9:10 am Finance Tagged with: , , , , , , ,  


Lewis Wickes Hine ‘Hot dogs’ for fans waiting for gates to open at Ebbets Field 1920

Asia Stocks Fall as Japan Awaits Stimulus (BBG)
Japanese Bonds Are Plunging, Australia’s Surge To Record (BBG)
China Debt Situation Gets Worse And Other EMs Start To Struggle (VW)
China Set For Special Drawing Rights Bond Issues (SCMP)
China Regulator Shutters 10,000 Funds (R.)
Student-Loan Defaulters in a Standoff With Federal Government (WSJ)
The State Of Europe’s Banks Is Far From Steady (CNBC)
UniCredit Shares Fall Sharply After European Bank Stress Tests (G.)
UK PM May Revives Industrial Policy Killed Off By Thatcher 30 Years Ago (R.)
Home Ownership In England At Lowest Level In 30 Years (G.)
South Korea Halts Sale of 80 Volkswagen Models Over Emissions Scandal (AFP)
Aid Workers Try To Convert Muslim Refugees At Greek Camp (G.)
New Greek Bailout Finds IMF In A Political Bind (AFP)
Let the Games Begin! (Jim Kunstler)

 

 

With the BOJ running out of playing field, what goood can Abe do?

Asia Stocks Fall as Japan Awaits Stimulus (BBG)

Asian stocks fell for the first time in seven days, retreating from an almost one-year high, as Japanese shares slid ahead of the announcement of a $274 billion stimulus package and a slump in oil weighed on energy and commodity companies. The MSCI Asia Pacific Index dropped 0.4% to 136.85 as of 9:03 a.m. in Tokyo after closing Monday at the highest since Aug. 17. Material and industrial shares led losses on the regional gauge, while energy producers also retreated, after crude sank into a bear market and sank below $40 a barrel for the first time since April on Monday. Japan’s Topix index lost 0.8% as investors weighed earnings and the government was poised to give details on steps to bolster an economy threatened by a strengthening yen and weak consumer spending.

Asian equities have extended their July rally, which was the best month since March, on the prospect of more global stimulus. The regional gauge has now shrugged off the fallout of Britain’s vote to leave the European Union and is up 3.7% for the year. Still, oil’s fall of more than 20% from its June high is muddying the waters and raising concerns about the recovery of the global economy. Crude’s decline “will probably weigh on sentiment a little bit and we may see some risk-off moves associated with that,” James Woods, a strategist at Rivkin Securities in Sydney, said by phone. “We’ll have an update from Shinzo Abe in Japan today, just running through the measures of the 28 trillion yen stimulus package. It’s really what’s going to dictate risk sentiment today.”

Read more …

Yikes.

Japanese Bonds Are Plunging, Australia’s Surge To Record (BBG)

Japanese bonds are plunging. Australia’s surged to a record. Blame it all on central banks. Benchmark sovereign notes in Japan headed for their biggest loss in three years on speculation the central bank will amend its unprecedented debt-purchase plan as soon as September. Australian yields tumbled to levels never seen before as the Reserve Bank cut interest rates in response to inflation running below its target. The divergence highlights the potency central banks have over their bond markets, even when analysts are questioning the limits of monetary policy. The Reserve Bank of Australia, with a benchmark of 1.5%, still has room to cut. PIMCO said the Bank of Japan – which is buying 80 trillion yen ($780 billion) a year of bonds and uses negative interest rates – has pushed policy as far as it can.

“The financial markets are being driven by what the central banks are doing,” said Roger Bridges at Nikko Asset Management in Sydney. “The central bank here has room to cut if necessary. In Japan, the policy options are deemed to be running out.” [..] Japanese policy makers fueled speculation they’re running out of options when they finished a meeting last week and opted against extending their two main tools, the bond purchases and negative interest rates, even as the inflation rate falls further below zero. They also announced a review of the effectiveness of the central bank’s policies. “We have probably seen the low of the yield of the super long JGBs,” Tomoya Masanao, Pimco’s head of portfolio management in Japan, wrote. “The BOJ hit its limit,” he wrote in a report on the company’s website last week.

Read more …

Let’s see the NPLs in the shadow system.

China Debt Situation Gets Worse And Other EMs Start To Struggle (VW)

One article this month pretty much summed up the overbuilding issue in China. In aggregate, Chinese cities are planning for 3.4 billion people in 2030. That’s three times the existing population and forecast population growth is minimal. Peak urbanisation may have arrived for China, the substantial slowdown in wage inflation is a strong indicator that the demand for labour is flat at best. This aligns with recent reports of a substantial increase in the unemployment rate. The city of Tieling is one example of what happens when a construction and manufacturing bubble pops. Remember that local governments earn most of their revenues from property development activities, which would fall flat if urbanisation stops.

A collapse in revenue would make debt servicing problematic, which is particularly concerning as local governments have seen an enormous increase in their debt issuance in 2015 and 2016. This includes continuing to build coal fired power plants when the existing plants are running at low capacity. Local governments are blocking lenders from withdrawing credit in order to protect jobs at zombie companies. 7.5% of companies in China are believed to be economically unviable, with medium and large state owned entities the worst.

Last month I wrote about the first non-performing loan securitisations in China and it looks like this process is ramping up. The Agricultural Bank of China is planning to sell a US$1.6b securitisation of non-performing loans which includes the underlying loans being marked down to 29% of face value. The other big way that banks are planning to clean up their loan books is debt to equity swaps, which are expected to start soon. There’s plenty to worry about with peer to peer lending and a crackdown is coming for wealth management products. In order to reduce fraud in these areas executives are being given tours of prisons, as a reminder of what might happen to them when investors lose money.

Read more …

I talked about this yesterday in Why Should The IMF Care About Its Credibility? I don’t see it becoming a major issue any time soon, if at all.

China Set For Special Drawing Rights Bond Issues (SCMP)

China might take another big step forward this month in its long-term aim to forge an IMF money system into the world’s dominant currency. Mainland media group Caixin reported that the World Bank planned to issue bonds denominated in Special Drawing Rights in China as early as the end of this month. It said policy bank China Development Bank was also planning an SDR bond issue. The SDR is a unit of money created by the IMF and defined by a weighted average of various convertible currencies. Market traders questioned the real purpose of such bonds, saying the SDR had little use in investment and trade. China has long had an obsession with the IMF’s SDR and wants to reduce the global reliance on the US dollar.

The IMF agreed last November to add the yuan to its SDR basket of currencies and offered the weighting as the third-biggest in the group, which Beijing saw as a triumph in its push for the yuan to have greater global influence. But the yuan later came under heavy depreciation pressure amid massive capital outflows, raising doubts about its credibility as a global currency. Beijing then began to publish its foreign exchange reserves, overseas investment and payments denominated in SDR. Central bank governor Zhou Xiaochuan said in April that the People’s Bank of China was studying the feasibility of issuing SDR bonds in China. If the World Bank issue went ahead, it would be one month before the yuan was formally included in the currency basket.

Bank of China researcher Zhao Xueqing said the timing was proper because the IMF was looking for ways to expand the use of the monetary unit. However, one Shanghai-based trader at a major bank said the issue would be more symbolic than meaningful. “It’s more like China wanting to show it has a big role in the global financial market”, she said. “But who will buy them? How will they be priced and transacted? … Even yuan-denominated bonds issued by foreign institutions are not actively traded.” An in-house economist at a Shenzhen-based domestic bank said:“I doubt there is any meaningful use to the issuing of such bonds. If such bonds were worth investing in, why hasn’t there been any active issues or transactions in much more mature countries before?”

Read more …

China’s financial world is still Wild East. Lots of abuse and losses for grandma’s.

China Regulator Shutters 10,000 Funds (R.)

China’s funds regulator said on Monday it has canceled the licenses of over 10,000 funds, amid a crackdown on the country’s poorly regulated fund management sector, which has been dogged by runaway managers and misappropriation of investments. The move comes after the hedge fund industry was thrown into disarray earlier this year as managers rushed to comply with stringent new rules. “Some funds registered in reality had no intention of getting into the business,” the Asset Management Association of China (AMAC) said. “Some engaged in illegal fundraising for illegal and criminal activities under the guise of funds, cheating the public,” the note added. New rules introduced by AMAC that took effect in July require fund managers to fully disclose their investment risks, review the identities of investors, and set up special accounts to manage capital.

Read more …

Something will have to give. The numbers are getting out of hand.

Student-Loan Defaulters in a Standoff With Federal Government (WSJ)

The letters keep coming, as do the emails. They head, unopened, straight into Jason Osborne’s trash and deleted folder. The U.S. government desperately wants Mr. Osborne and his wife to start repaying their combined $46,500 in federal student debt. But they are among the more than seven million Americans in default on their loans, many of them effectively in a standoff with the government. These borrowers have gone at least a year without making a payment—ignoring hundreds of phone calls, emails, text messages and letters from federally hired debt collectors. Borrowers in long-term default represent about 16% of the roughly 43 million Americans with student debt, now totaling $1.3 trillion across the U.S., and their numbers have continued to climb despite the expanding labor market.

Their failure to repay—in many cases due to low wages or unemployment, in other cases due to outright protest at what borrowers see as an unfair system—threatens to leave taxpayers on the hook for $125 billion, the total amount they owe. The Osbornes say they are the victims of a for-profit school that made false promises and a predatory lender—the government. “Do you think I’m going to give them one penny I’m making to pay back the loan for a job I’m never going to hold?” said Mr. Osborne, 45, who studied to be a health-care worker but can’t find a job as one. The rising number of borrowers in default weakens the economy as underwater homeowners did after the housing crash: by damaged credit, an inability to spend and save for the future, and a lack of resources to move to better jobs.

Read more …

“..the 34 listed banks in the latest stress tests results have lost on average 33% of their book value since the last stress tests were done less than two years ago..”

The State Of Europe’s Banks Is Far From Steady (CNBC)

Bank investors rejoice! The European Banking Authority declares stress tests should no longer be about pushing fresh capital into the system, as they were five years ago, or drilling down in to asset quality, as in 2014. Nope. The good news is that we are now in a world where “steady-state monitoring” is what’s needed. So will this “steady state’ policy pronouncement provide the confidence and assurance investors need? I hate to say it but I’m not convinced. Even if the stock prices overall bounce a bit this week, the banking sector did not get off to a good start Monday. I fear the market will continue to apply their own version of stress tests and find both the banks – and the regulators for that matter -lacking.

I asked European Central Bank President Mario Draghi at the last policy meeting if investors were over-exaggerating the risks. His response was cautious but positive. ”I don’t want to underplay the situation, to say it’s not a solvency problem, it’s a profitability problem doesn’t mean that one underplays but figure wise, we see from a solvency viewpoint, our banks are better off than years ago but our banks do have profitability issues, especially those with a high share of NPLs (non-performing loans), but not only those with high share of NPLs, some of it has to do with weak growth performance of the past few years. Draghi added that he was pretty confident that “strong supervision, robust regulation and better communication by supervisory authorities will still improve the situation and the perception in the rest of the world’s eyes.”

Call me cynical but I’m not sure the EBA’s “steady state” monitoring communication is quite what investors are looking for. Especially when you have a panel of respected academics including ZEW’s Sascha Steffen suggesting this month that European banks need €900 billion ($1 trillion) of fresh capital to convince investors they are robust. Who knows? But just compare that to the €280 billion the EBA says has been pumped in since 2011. Plus the report’s authors also point out that the 34 listed banks in the latest stress tests results have lost on average 33% of their book value since the last stress tests were done less than two years ago. A clear sign in my mind that the market still had significant concerns about the health of bank balance sheets and their ability to make profits.

Read more …

Can Renzi bail out his biggest banks too, like he trying to do with Monte Passchi?

UniCredit Shares Fall Sharply After European Bank Stress Tests (G.)

Italy’s biggest bank, UniCredit, has borne the brunt of lingering anxiety about the country’s banking sector, seeing its shares fall sharply following the EU-wide banking health checks. The 9.4% drop in UniCredit shares, which were being closely monitored by the Italian Borse on Monday amid heavy trading, followed Friday’s publication of stress tests on 51 banks across the EU. In the European Banking Authority tests, UniCredit recorded a capital ratio of more than 7% after the stress test applied a hypothetical shock to global growth, interest rates and currencies. Although well above the legal minimumof 4.5%, it left Unicredit as one of the five weakest out of the 51 banks tested.

The deterioration in its capital ratio was not on the scale of Banca Monte dei Paschi di Siena (MPS) – Italy’s third largest bank – which announced a rescue package on Friday aimed at funding at least €5bn worth of capital, after the stress test showed that its entire capital base would be wiped out under the adverse scenario. MPS was the worst-performing bank of any bank tested. Shares in MPS, regarded as the world’s oldest bank, were among the few to rally after the stress test results as its rescue operation appeared to alleviate pressure on the Italian government to intervene. Even so, questions remained about how easily MPS could find investors willing to stump up €5bn when its existing stock market value was less than €1bn.

Read more …

In itself, not a bad idea. Just don’t push it all towards exports. Make your own stuff. It’s the way of the future.

UK PM May Revives Industrial Policy Killed Off By Thatcher 30 Years Ago (R.)

Prime Minister Theresa May will on Tuesday outline her bid to reshape the British economy for a post-Brexit world, reviving the once unfashionable concept of industrial policy 30 years after Margaret Thatcher killed it off. May will chair the first meeting of the “Cabinet Committee on Economy and Industrial Strategy” in her Downing Street Offices, bringing together the heads of 11 other ministries to set out her vision for a state-boosted industrial renaissance. “If we are to take advantages of the opportunities presented by Brexit, we need to have our whole economy firing,” May said ahead of the meeting in a statement released by her office. “We also need a plan to drive growth up and down the country – from rural areas to our great cities.”

After a referendum campaign that revealed dissatisfaction in many of Britain’s struggling post-industrial regions, May is pitching a plan to reunite the country by raising the prospects of those who she casts as “hard-working people”. The June 23 vote to leave the EU has raised serious questions about the future of the world’s fifth largest economy, with some surveys indicating a recession, a hit to consumer confidence and a possible fall in investment. “We need a proper industrial strategy that focuses on improving productivity, rewarding hard-working people with higher wages and creating more opportunities for young people so that, whatever their background, they go as far as their talents will take them,” May said ahead of the meeting.

Read more …

This is the kind of pain that takes a long time to heal. But how predictable would you like it? “According to Nationwide, the UK average had risen to £196,930 in February – a 60% increase in 13 years.”

Home Ownership In England At Lowest Level In 30 Years (G.)

Home ownership in England has fallen to its lowest level in 30 years as the growing gap between earnings and property prices has created a housing crisis that extends beyond London to cities including Manchester. The struggle to get on the housing ladder is not just a feature of the London property market, according to a new report by the Resolution Foundation thinktank, with Greater Manchester seeing as big a slump in ownership since its peak in the early 2000s as parts of the capital, and cities in Yorkshire and the West Midlands also seeing sharp drops. Home ownership across England reached a peak in April 2003, when 71% of households owned their home, either outright or with a mortgage, but by February this year the figure had fallen to 64%, the Resolution Foundation said.

The figure is the lowest since 1986, when home ownership levels were on the way up, with a housing market boom fuelled by the deregulation of the mortgage industry and the introduction of the right-to-buy policy for council homes by Margaret Thatcher’s Conservative government. The Resolution Foundation’s analysis highlights the scale of the job faced by the prime minister, Theresa May, who has pledged to tackle the housing deficit. May warned last month that unless the issue was dealt with “young people will find it even harder to afford their own home. The divide between those who inherit wealth and those who don’t will become more pronounced. And more and more of the country’s money will go into expensive housing.”

The report, based on analysis of the latest Labour Force Survey, showed that in early 2016 only 58% of households in Greater Manchester were homeowners, compared with a peak of 72% in 2003. In outer London, the peak in ownership came earlier, in 2000, but the fall was also from 72% then to 58% in February. The West Midlands and Yorkshire have also seen double-digit drops, driven by declines in Sheffield and Leeds.

Read more …

VW had already suspended sales July 25. BTW: 80 different models?!

South Korea Halts Sale of 80 Volkswagen Models Over Emissions Scandal (AFP)

South Korea is suspending sales of 80 Volkswagen models as part of a widening investigation into the German carmaker’s emissions cheating scandal. The environment ministry said most of the models had been showcased for sale until recently, and added that the problem vehicles had fabricated documents for emissions and noise-level tests. “As of August 2 we have revoked the certification of 83,000 vehicles of 80 models,” said a ministry statement. In July South Korean prosecutors arrested an executive of Volkswagen’s South Korean unit as part of their investigations.

The world’s second-largest automaker faces legal action in several countries after it admitted to faking US emissions tests on some of its diesel-engined vehicles. In November 2015 Seoul ordered Volkswagen Korea to recall more than 125,000 diesel-powered cars sold in South Korea and fined the firm 14.1bn won ($12.3m). Foreign carmakers, especially German brands like Volkswagen, have steadily expanded their presence in South Korea’s auto market, long dominated by the local giant Hyundai and its affiliate Kia. Sales of foreign cars account for about 15% of total auto sales, compared with 10% in 2012. Around 70% of foreign auto sales in South Korea are diesel-engined vehicles.

Read more …

One of many things that are going wrong in Greece vis a vis refugees.

Aid Workers Try To Convert Muslim Refugees At Greek Camp (G.)

Christians working in Greece’s most notorious asylum detention centre have tried to convert some of the Muslim detainees, who have been held under the terms of the EU-Turkey migration deal. On at least two occasions in recent months, aid workers have distributed conversion forms inside copies of Arabic versions of the St John’s gospel to people held at the Moria detention camp on Lesbos. The forms, seen by the Guardian, invite asylum seekers to sign a statement declaring the following: “I know I’m a sinner … I ask Jesus to forgive my sins and grant me eternal life. My desire is to love and obey his word.” Muslim asylum seekers who received the booklet said they found the aid workers’ intervention insensitive.

“It’s a big problem because a lot of the people are Muslim and they have a problem with changing their religion,” said Mohamed, a detainee from Damascus. “They were trying this during Ramadan, the holiest Muslim month.” A second Syrian, Ahmed, said: “We like all religions, but if you are a Christian, and I give you a Qur’an, how would you feel?” Detainees alleged that the forms were distributed by at least two representatives of Euro Relief, a Greek charity that became the largest aid group active in Moria after other aid organisations pulled out in protest against the EU-Turkey deal. The camp is overseen by the Greek migration ministry, but aid groups perform most of the day-to-day management.

Read more …

As I wrote yesterday in Why Should The IMF Care About Its Credibility?, the IMF has a credibility problem. Multiple, in fact.

New Greek Bailout Finds IMF In A Political Bind (AFP)

The IMF can scarcely ignore Europe. Its members together hold the largest voting bloc on the Executive Board, the body which approves bailouts. The United States is still the single-largest member. The result is a complex equation for the Fund, which has pledged to make a decision before the end of the year. If it bails Greece out again, some will surely see Europes hand pulling the strings. But if it abstains, the Fund may appear to suggest the bailout is doomed to fail. “That’s the conundrum they face,” Peter Doyle, a former official in the IMF’s European Department, told AFP. ”If they go along they look like they’re caving in; if they reject, it means that they could potentially be raising new big alarms.” With its nerves already frayed by Brexit, Europe can still hardly afford a new, large-scale Greek crisis.

This latest dilemma could still offer the IMF a means of proclaiming its independence from the member countries. “Theres a need for them to rebuild their credibility,” Desmond Lachman, a former European Department official, told AFP. “By staying out of Greece, they could tell the rest of the world ‘weve realized that we were politically used.’” Doyle does not believe the IMF can be truly independent, saying the United States and Europe will still call the shots. ”That’s only what matters and that has always been the case,” said Doyle, who left the Fund in 2012. At the center of the drama and after six years of recession, Greece has seized on the latest controversy to make its views known. “The IMF has been neither useful nor needed in Europe,” said Olga Gerovassili, a government spokeswoman.

Read more …

“And so the great disaster movie of 2016 commences: Godzilla Versus Rodan the Flying Reptile.”

Let the Games Begin! (Jim Kunstler)

The distraction du jour is whether Trump has become an agent of Russia. Notice that this line of intel comes direct from the neo-con central agitprop desk. This unofficial US War Party representing the amalgamated war industries has been busy demonizing Russia throughout the current presidential term. Not all Americans are so easily gulled, though. Those who know history understand, for instance, that the Crimea has been a province of Russia almost continually for hundreds of years — except the brief interval when the ur-Ukrainian Soviet leader, Nikita Khrushchev one drunken evening gave it away to the then-Soviet region of Ukraine in a fit of sentimentality, assuming it would remain a virtual property of Greater Russia forever.

Notice, too, that since Russia annexed it in 2014 (being the site of its only warm water port and major naval stations) not even the US neo-con war party has been able to make a credible case for fighting over it. Instead, they’ve resorted to name-calling: Putin the “thug,” Putin the “worst political gangster in the world.” This is exactly the brand of foreign policy that Hillary will bring to the Oval Office. Not that Donald Trump offers a coherent alternative. The reasonable suspicion persists that he doesn’t know his ass from a hole in the ground vis-à-vis how the affairs of the world actually work. For him it’s all same as tough-talking the sheet-rocker’s union. Then, of course, Trump had to immediately step in dog-shit by bad-mouthing the mother of an American army hero who-just-happened-to-be of the Mohammedan persuasion.

Trump for practical purposes is a child and a reasonable case is not hard to make for denying him presidential power. And so the great disaster movie of 2016 commences: Godzilla Versus Rodan the Flying Reptile. Which one will survive to completely destroy the sclerotic remains of our nation? The good news is that voters are moving to the Third and Fourth party nominees, Gary Johnson (Libertarian) and Jill Stein (Green) in droves, herds, flocks, porpoise pods, and stampedes. Perhaps both of these relatively sane candidates will show enough polling strength to make it into the Great Debates. Won’t that be fun?

Read more …