yuan Archives - Page 5 of 11 - The Automatic Earth

The Federal Reserve hiked interest rates just two weeks ago for the second time in a decade, but it will soon be cutting them again, said Jim Rickards on Tuesday. Speaking to CNBC’s Squawk Box, the director of The James Rickards Project said a stock market correction is coming as President-elect Donald Trump’s economic stimulus plans will not pan out, causing a “head-on collision” between perception and reality. “When the reality of no stimulus catches up with the perception of stimulus plus the Fed tightening: that’s the train wreck. Either we’re going to have a recession or a stock market correction,” he said. The markets have been rallying on the back of Trump’s win as investors bet on tax cuts and fiscal spending under the new administration.

However, “the stimulus is not going to come” as Trump’s proposed tax cuts will hit government revenue while the Congress is likely to block his stimulus plans as the U.S. is already $20 trillion in debt, Rickards added. This will lead to a recession or a “very severe correction” in the stock market, prompting rate cuts later next year, he said, prompting the Fed to cut rates. “They will raise (rates) in March and then something will hit the wall, either the economy or the stock market or both. Then the Fed will backpedal from there, starting with a forward guidance then perhaps a rate cut later in the year,” said Rickards, who recommends holding gold and U.S. 10-year Treasurys.

Ominous.

• Did Donald Trump Just Jump The ‘Dow 20,000’ Shark? (ZH)

It appears the sugar-high from holiday celebrations is still running through president-elect Trump's veins as his tweets took an even more narcisistic tone on this oh-so-aptly-named 'Boxing Day' in America. First Trump decided to take credit for the unprecedented short-squeeze in US stock markets – and the Christmas spending numbers…

The world was gloomy before I won – there was no hope. Now the market is up nearly 10% and Christmas spending is over a trillion dollars!

— Donald J. Trump (@realDonaldTrump) December 26, 2016

We just wonder what he will sat if/when Goldman Sachs stops rising and stocks tumble ("never gonna happen", probably The Fed's fault after all), but perhaps even more importantly, how does he feel about the $1.2 trillion of value he has erased from global capital markets since his election?

The drop in global debt and equity values in Q4 2016 is very reminiscent of the drop into 2015's Fed rate hike… which did not end well…

But, the last time that global stocks and global bonds decoupled so aggressively was following the end of QE3… here's what happened next…

But it's probably different this time, right? China is fine (oh wait, failed auctions and liquidity crisis), Europe is fine (oh wait, Italian banks are collapsing), and the US economy is great (oh wait, automakers are shuttering plants due to credit-created excess inventory).

* * *

But Trump was not done there, he took on the arrogance of Obama, as we detailed earlier…

President Obama said that he thinks he would have won against me. He should say that but I say NO WAY! – jobs leaving, ISIS, OCare, etc.

— Donald J. Trump (@realDonaldTrump) December 26, 2016

Invincible politician and stock market savior…Let's just hope nothing goes wrong to break that narrative in the next 4 years (or 4 weeks).

Beijing will be forced to take very unpopular decisions. Xi signaled tolerance for a lower growth target, and whoops goes the money. They’re stuck in their own bubbles.

• Yuan Trading Volume Has Been Surging In December (BBG)

The onshore yuan’s surging trading volume is another piece of evidence that capital is fleeing China at a faster pace. The daily average value of transactions in Shanghai climbed to $34 billion in December as of Monday, the highest since at least April 2014, according to data from China Foreign Exchange Trade System. That’s up 51% from the first 11 months of the year. The increase suggests quickening outflows, given that data in recent months showed banks were net sellers of the yuan, according to Harrison Hu at RBS This month’s jump in trading volume signals sentiment has kept deteriorating since November, when the nation’s foreign-exchange reserves shrank by the most since January.

The Chinese currency is headed for its steepest annual slump in more than two decades and when the year turns, authorities will be faced with a triple whammy of the renewal of citizens’ $50,000 conversion quota, prospects of further Federal Reserve interest-rate increases, and concern that U.S. President-elect Donald Trump may slap punitive tariffs on China’s exports to the world’s largest economy. “Capital outflow pressures will stay, and in near term, we should monitor the impact upon the reset of the annual quota,” said Frances Cheung at Societe Generale. The pressures will likely ease toward the end of the first quarter as foreign flows into China’s bond market quicken, she said.

If it quacks like a typical bank run… Don’t you think they could perhaps have done this deal in silence?

• ECB: Monte dei Paschi Must Now Raise €8.8 Billion After Recent Withdrawals (R.)

The ECB has told Monte dei Paschi it needs to plug a capital shortfall of €8.8 billion, higher than a previous €5 billion gap estimated by the bank, the lender said on Monday, confirming what sources told Reuters. Last Friday the Italian government approved a decree to bail out Monte dei Paschi after Italy’s No. 3 lender failed to win investor backing for a desperately needed €5 billion capital increase. The bank said on Monday it had officially asked the ECB last Friday for go ahead for a “precautionary recapitalization”. A precautionary recapitalization is a type of state intervention in a struggling bank that is still solvent. It means only a modest bail-in of investors though the government can buy shares or bonds only on market terms endorsed by EU state aid officials in Brussels.

In its reply, the ECB said it had calculated the capital it believed the bank needed on the basis of a shortfall emerging from European stress test of large lenders earlier this year. In those tests Monte dei Paschi was the only Italian bank to come short under an adverse scenario. The ECB said the lender was solvent but signaled the bank’s liquidity position had rapidly deteriorated between the end of November and December 21, Monte dei Paschi said. [..] The European Commission said on Friday it would work with Rome to establish conditions were met for a bailout of Monte dei Paschi. But on Monday ECB policymaker Jens Weidmann said plans for a state bailout of Monte dei Paschi should be weighed carefully as many questions remain to be answered.

“..He was awarded the Nobel Peace Prize, but ended up invading 7 countries. He also became the very first U.S. President to be at continuous war during his entire 8 years in office…”

• War & The Rejection of Peace (Rossini)

Try to think of a time in your life when the U.S. government was not militarily involved somewhere in the world. It’s a sad fact that a vast majority of us can’t recall such a time. [..] When war is all that a population knows to exist, the idea of peace becomes an anomaly. We all know that people are habitual. We cling to our habits (good and bad) and resist the unknown where change can occur. Well, in America the unknown has become peace! How sad to think that the idea of peace actually terrifies so many people both in and out of government. One can at least understand why governments would want to avoid peace. As Randolph Bourne famously pointed: “War is the health of the state.” During times of war, government capitalizes on the fear that it generates and concomitantly seizes unbelievable powers for itself.

We can at least see the benefit to government and those with a lust for power and the ability to dominate others. But what’s in it for the people? Here we can quote Samuel B. Pettengill who said: “War – after all, what is it that the people get? Why – widows, taxes, wooden legs and debt.” Sounds like a raw deal for the people. And yet, Americans have sat idly by, and have turned a blind eye to an incredible list of military interventions over the years. More war, less liberty …. More war, less liberty …. If it happens over an administration or two, it can be spun as government losing its way to a few bad apples. But 100+ years of more war, less liberty? That’s a system!

[..] There is a tremendous amount of upside to war for those who are in power. It provides them with an opportunity to swipe away liberties at an exponential pace. The populace will give up virtually everything. Is it any wonder that those in power run away from even the prospect of peace? We’re soon about to have a new president, and he’s coming into office with a lot of expectations. The outgoing president had high expectations as well. He was awarded the Nobel Peace Prize, but ended up invading 7 countries. He also became the very first U.S. President to be at continuous war during his entire 8 years in office. Will this new president keep the boots of war firmly pressed against American throats? Will he continue the asphyxiation of the American Dream?

So far, when it comes to the insane idea of confronting a nuclear Russia, he has shown admirable qualities of restraint and cordial behavior. Will that continue through his presidential term? Or will he keep the century old American tradition of military adventurism overseas? The world is much bigger than Russia. There are plenty of other places that America can mire itself. There are other nuclear powers (like China) where trouble can be fomented. The president-elect has already shown that he has a bone to pick with the Chinese. Are we merely exchanging trouble with one nuclear power for another? Let’s hope that Donald Trump doesn’t repeat the mistakes of history. Let’s hope that he doesn’t become just another bad example for future generations to study.

Wouldn’t it be nice for Americans to someday be born into a life of liberty and peace? That was the original idea in the ‘land of the free’. A return to a foreign policy of non-interventionism and peace is desperately needed.

Quite the allegation.

• Israel Claims ‘Evidence’ That Obama Orchestrated UN Resolution (G.)

Israel has escalated its already furious war with the outgoing US administration, claiming that it has “rather hard” evidence that Barack Obama was behind a critical UN security council resolution criticising Israeli settlement building, and threatening to hand over the material to Donald Trump. The latest comments come a day after the US ambassador to Israel, Dan Shapiro, was summoned by Netanyahu to explain why the US did not veto the vote and instead abstained. The claims have emerged in interviews given by close Netanyahu allies to US media outlets on Monday after the Obama administration denied in categorical terms the claims originally made by Netanyahu himself.

However, speaking to Fox News on Sunday, David Keyes – a Netanyahu spokesman – said Arab sources, among others, had informed Jerusalem of Obama’s alleged involvement in advancing the resolution. “We have rather iron-clad information from sources in both the Arab world and internationally that this was a deliberate push by the United States and in fact they helped create the resolution in the first place,” Keyes said. Doubling down on the claim a few hours later the controversial Israeli ambassador to Washington, Ron Dermer, went even further suggesting it had gathered evidence that it would present to the incoming Trump administration. “We will present this evidence to the new administration through the appropriate channels. If they want to share it with the American people, they are welcome to do it,” Dermer told CNN.

Curious things for Obama to say. It’s not obvious enough yet that his own party has fallen apart?

• Corbyn Hits Back After Obama Suggests Labour Is ‘Disintegrating’ (G.)

A spokesman for Jeremy Corbyn has hit back after Barack Obama appeared to suggest that the Labour party has moved away from “fact and reality” and is disintegrating. The spokesman said the Labour leader “stands for what most people want” and suggested that the outgoing president’s Democratic party needed to “challenge power if they are going to speak for working people”. Obama had earlier said he was not worried when asked if the US Democrats could undergo “Corbynisation” and “disintegrate” like Labour in the wake of Hillary Clinton’s election defeat by Donald Trump. The departing US president was giving an in-depth interview, in which he also said he would have won the 8 November contest if he ran for a third term, to David Axelrod, formerly an adviser to Corbyn’s predecessor as Labour leader, Ed Miliband.

The 55-year-old compared the way the Labour party and the US Republicans had chosen to swing away from the middle ground and claimed even left-wing senator Bernie Sanders was a centrist compared to Corbyn. Asked about a potential “Corbynisation” of his party, he said: “I don’t worry about that partly because I think that the Democratic party has stayed pretty grounded in fact and reality.” He added: “[The Republican party] started filling up with all kinds of conspiracy-theorising that became kind of common wisdom or conventional wisdom within the Republican party base. That hasn’t happened in the Democratic party. I think people like the passion that Bernie brought, but Bernie Sanders is a pretty centrist politician relative to … Corbyn or relative to some of the Republicans.” In response Corbyn’s spokesman said: “Both Labour and US Democrats will have to challenge power if they are going to speak for working people and change a broken system that isn’t delivering for the majority.

They’re going to continue to fight over this for much longer.

• Hard Brexit ‘Could Boost UK Economy By £24 Billion’: Pro-Leave Group (Ind.)

The UK economy could benefit by £24bn a year – more than £450m a week – by leaving the European single market and customs union, a pro-Brexit pressure group has claimed. The Change Britain group said that the option – which it describes as “clean Brexit” – is likely to deliver annual savings of almost £10.4bn from contributions to the EU budget and £1.2bn from scrapping “burdensome” regulations, while allowing the UK to forge new trade deals worth £12.3bn. The group said its estimate was “very conservative” and that the benefits of withdrawal from the single market and customs union could be as much as £38.6bn a year. Even the lowest forecast within its range of likely outcomes was a boost of £20bn.

But the figure does not factor in the possibility of large-scale loss of exports to the remaining 27 EU nations, which advocates of a “soft Brexit” argue could happen if the UK faces tariff and non-tariff barriers to trade as a result of leaving the single market. Britain exported around £220bn of goods and services to the EU in 2015, while imports from the EU totalled around £290bn. Change Britain said that the biggest prize on offer was in potential trade agreements outside the EU which Britain could strike if it left the customs union, which requires it to take part only in deals negotiated by the European Commission. Depending on how many deals the UK secures, GDP could be boosted by between £8.5bn and £19.8bn, said Change Britain.

Might as well. It’s just that King has been ‘unlucky’ in his predictions for years.

• Mervyn King: Britain Should Be More Upbeat About Brexit (G.)

Britain may be better off going for a hard Brexit that would mean leaving the single market and customs union, Mervyn King, the former governor of the Bank of England, has suggested. Lord King, who has been more optimistic about leaving the EU than many economic commentators, acknowledged that Brexit would bring great political difficulties and would not be a “bed of roses”. Speaking to BBC Radio 4’s Today programme, he also said there would be many opportunities economically for the UK striking out on its own. The crossbench peer, who led the bank for a decade until 2013, said the UK should leave the European single market and warned there were “real question marks” over whether it should seek to remain in the customs union, which would limit its ability to forge trade deals on its own.

Theresa May’s cabinet is split on the issue of the single market and customs union, with the most pro-Brexit ministers seeking a clean break and others warning of the economic dangers of being cut adrift from the UK’s closest trading partners. King said before the referendum that warnings of economic doom about leaving the EU were overstated. Since then, he has welcomed the fall in the pound and said he believes Britain can be better off out than in the EU. He told the BBC on Boxing Day: “I think the challenges we face mean it’s not a bed of roses – no one should pretend that – but equally it is not the end of the world and there are some real opportunities that arise from the fact of Brexit we might take. “There are many opportunities and I think we should look at it in a much more self-confident way than either side is approaching it at present. Being out of what is a pretty unsuccessful European Union – particularly in the economic sense – gives us opportunities as well as obviously great political difficulties.”

At least he’s right on this.

• EU Faces Two Major Problems – And Has Answers To Neither: King (Ind.)

The European Union is facing “existential problems” over migration and the single currency for which it does not yet have the answers, former Bank of England governor Lord King has warned. Lord King said the scale of the crises was such that Brexit amounted to little more than “minor irritant” by comparison. And he suggested that the factor which could bring the problems to a head was German voters asking whether they want to remain part of a project which involves them propping up less competitive eurozone economies like Italy, Portugal and France. Lord King said that the single currency project was flawed from the start, and that it would probably have been better to create two monetary unions for “premier league” and “second division” economies. But he said it was too late to move to this model now.

Speaking to BBC Radio 4’s Today programme, the former governor said: “I think the EU is facing two existential problems and it has answers to neither of them. “The first is the fate of the monetary union, which even the ECB is saying is in a critical position and needs major reform. “Secondly, migration from outside the EU into the EU and the knock-on consequences of that for the free movement of people. “I don’t think they have answers for either of those issues and it is a real crisis for the EU. “British membership is irrelevant to these two questions and from that perspective I think they regard our decision to leave the EU as a minor irritant.” Lord King said it was impossible to put any timescale on when the problems of the eurozone might come to a head. But he said: “They simply haven’t put in place the framework to make it a success, desperately trying to struggle from one month to the next.

“For a long period they were relying on the confidence that financial markets had in the words of (ECB) president Mario Draghi that they would do ‘whatever it takes’. But I think words in the end run out and you need to back them up by actions. “The problem now is that people in Germany and other countries in the northern part of the EU are deeply reluctant – understandably – to pay for countries in the south. That wasn’t the prospectus they were offered when they joined the monetary union. “In the long run, it would make some sense to recognise that it was a mistake to go to monetary union as early as 1999. I think they might have been able to divide it into two divisions – a premier league and a second division – but I think it may be too late to do. If you look at economies like Italy, Portugal and even France, they are really struggling.

Excellent from Jim, and that’s before his predictions for 2017.

• Exit, Hope and Change (Jim Kunstler)

From the get-go, he made himself hostage to some of the most sinister puppeteers of the Deep State: Robert Rubin, Larry Summers, and Tim Geithner on the money side, and the Beltway Neocon war party infestation on the foreign affairs side. I’m convinced that the top dogs of both these gangs worked Obama over woodshed-style sometime after the 2008 election and told him to stick with the program, or else. What was the program? On the money side, it was to float the banks and the whole groaning daisy chain of their dependents in shadow finance, real estate, and insurance, at all costs. Hence, the extension of Bush Two’s bailout policy with the trillion-dollar “shovel-ready” stimulus, the rescue of the car-makers, and a much greater and surreptitious multi-trillion dollar hand-off from the Federal Reserve to backstop the European banks with counter-party obligations to US banks.

In April of 2009, Obama’s new SEC appointees, strong-armed by bank lobbyists, pushed the Financial Accounting Standards Board (FASB) into suspending their crucial Rule 157, which had required publically-held companies to report their asset holdings based on standard market-based valuation procedures — called “mark-to-market.” After that, companies like Too-Big-Too-Fail banks could just make shit up. This opened the door to the pervasive accounting fraud that allowed the financial sector to pretend it was healthy for the eight years that followed. The net effect of their criminal fakery was to only make the financial sector artificially larger, more dangerously fragile, and more prone to cataclysmic collapse.

[..]in foreign affairs, there is Obama’s mystifying campaign against the Russian Federation. The US had an agreement with Russia after the fall of the Soviet Union that we would not expand NATO if they gave us a quantity of nuclear material that was in danger of falling into questionable hands in the disorder that followed the collapse. Russia complied. What did we do? We expanded NATO to include most of the former eastern European countries (except the remnants of Yugoslavia), and then under Obama, NATO began holding war games on Russia’s border. For what reason? The fictitious notion that Russia wanted to “take back” these nations — as if they needed to adopt a host of dependents that had only recently bankrupted the Soviet state. Any reasonable analysis would call these war games naked aggression by the West.

Then there was the 2014 US State Department-sponsored coup against Ukraine’s elected government and the ousting of President Viktor Yanukovych. Why? Because his government wanted to join the Russian-led Eurasian Customs Union instead of an association with European Union. We didn’t like that and we decided to oppose it by subverting the Ukrainian government. In the violence and disorder that ensued, Russia took back the Crimea — which had been gifted to the former Ukraine Soviet Socialist Republic (a province of Soviet Russia) one drunken night by the Ukraine-born Soviet leader Nikita Khrushchev. What did we expect after turning Ukraine into another failed state? The Crimean peninsula had been part of Russia for longer than the US had been a country. Its only warm water naval ports were located there.

One by one they leave us.

• Cheetahs Heading Towards Extinction As Population Crashes (BBC)

The sleek, speedy cheetah is rapidly heading towards extinction according to a new study into declining numbers. The report estimates that there are just 7,100 of the world’s fastest mammals now left in the wild. Cheetahs are in trouble because they range far beyond protected areas and are coming increasingly into conflict with humans. The authors are calling for an urgent re-categorisation of the species from vulnerable to endangered. According to the study, more than half the world’s surviving cheetahs live in one population that ranges across six countries in southern Africa. Cheetahs in Asia have been essentially wiped out. A group estimated to number fewer than 50 individuals clings on in Iran.

ZSL

Because the cheetah is one of the widest-ranging carnivores, it roams across lands far outside protected areas. Some 77% of their habitat falls outside these parks and reserves. As a result, the animal struggles because these lands are increasingly being developed by farmers and the cheetah’s prey is declining because of bushmeat hunting. In Zimbabwe, the cheetah population has fallen from around 1,200 to just 170 animals in 16 years, with the main cause being major changes in land tenure. [..] “The take-away from this pinnacle study is that securing protected areas alone is not enough,” said Dr Kim Young-Overton from Panthera, another author on the report. “We must think bigger, conserving across the mosaic of protected and unprotected landscapes that these far-reaching cats inhabit, if we are to avert the otherwise certain loss of the cheetah forever.”

We had a great Christmas Day live cooking event in Monastiraki square in Athens (see photos). I’ll get back to you on that. Donations through Paypal -top left hand corner of this page- of course remain welcome.

• The Automatic Earth in Greece: Big Dreams for 2017 (Automatic Earth)

Both Konstantinos and myself -and all the other volunteers at O Allos Anthropos- want to thank you so much for all the help you’ve given over the past year -and in 2015-. If I may make a last suggestion, please forward this ‘dream’ to anyone you know -and even those you don’t-, by mail, Twitter, Facebook, Instagram, word of mouth, any which way you can think of. Go to your local mayor or town council, suggest they can help and get -loudly- recognized for it. There may be a dream involved for 2017, but that was our notion a year ago as well, and look what we’ve achieved a year later: it is very real indeed. And anyone, everyone can become part of that reality for just a few bucks. If the institutions won’t do it, perhaps the people themselves should. That doesn’t even sound all that crazy or farfetched. There’s a lot of us.

Konstantinos Polychronopoulos, Athens Christmas Day 2016

Debt Rattle November 28 2016

Nov 282016

November 28, 2016 Posted by Raúl Ilargi Meijer at 8:38 am Finance Tagged with: biofuels, cash, Fillon, Le Pen, Modi, oil, recount, Renzi, shoppers, Stress Test, Trump, yuan, zombie Comments Off

NPC Hendrick Motor Co., Carroll Avenue, Takoma Park, Maryland 1928

• US Shoppers Spend 3.5% Less Over Holiday Weekend (R.)

• Some Of The Biggest UK Banks May Not Clear New Public Stress Tests (BBG)

• China’s Bad Banks Serve Zombies, Not Investors (BBG)

• PBOC Deputy Governor Talks Up Yuan Strength (CNBC)

• Modi’s Rural Supporters May Not Hang On Much Longer (BBG)

• India’s Modi Calls For Move Towards Cashless Society (R.)

• Greek Banks Call For Taxing Cash Withdrawals (Kath.)

• Trump Faces Dilemma As US Oil Reels From Record Biofuels Targets (R.)

• Oil Trades Near $46 Amid Skepticism OPEC to Reach Output Deal (BBG)

• Fillon Would Beat Le Pen in Both Rounds of Election – Polls (BBG)

• Renzi Faces Pressure To Stay In Office As Italy Referendum Defeat Looms (R.)

• Recount: Losers Who Won’t Lose (Mehta)

There’ll be a deluge of data on this coming out where everyone can find their favorite numbers. Everybody happy!

• US Shoppers Spend 3.5% Less Over Holiday Weekend (R.)

Early holiday promotions and a belief that deals will always be available took a toll on consumer spending over the Thanksgiving weekend as shoppers spent an average of 3.5% less than a year ago, the National Retail Federation said on Sunday. The NRF said its survey of 4,330 consumers, conducted on Friday and Saturday by research firm Prosper Insights & Analytics, showed that shoppers spent $289.19 over the four-day weekend through Sunday compared to $299.60 over the same period a year earlier. The survey found that 154 million people made purchases over the four days, up from 151 million a year ago. However, there was a 4.2% rise in consumers who shopped online and a 3.7% drop in shoppers who purchased in a store.

The U.S. holiday shopping season is expanding, and Black Friday is no longer the kickoff for the period it once was, with more retailers starting holiday promotions as early as October and running them until Christmas Eve. NRF Chief Executive Officer Matt Shay said the drop in spending is a direct result of the early promotions and deeper discounts offered throughout the season. “Consumers know they can get good deals throughout the season and these opportunities are not a one-day or one-weekend phenomenon and that has showed up in shopping plans,” he said. Shay said more 23% of consumers this year have not even started shopping for the season, which is up 4% from last year and indicates those sales are yet to come. The NRF stuck to its forecast for retail sales to rise 3.6% this holiday season, on the back of strong jobs and wage growth.

That graph is full-tard baseless and ridiculous.

• Some Of The Biggest UK Banks May Not Clear New Public Stress Tests (BBG)

The Bank of England added a new, higher bar to its third round of public stress tests. Some of the U.K.’s biggest banks will scrape through; others may not clear it. The seven major British lenders tested will probably beat the lowest measures of strength required to pass the annual BOE health check when it is released Wednesday, Autonomous Research aid in a note this month. RBS and Barclays risk a “soft fail” of tougher thresholds set for lenders deemed to be integral to the global banking system, they said. HSBC and Standard Chartered’s results may be rattled by a Chinese recession scenario.

Each bank now must top its individual hurdle rate and a new threshold, called the systemic reference point, that takes into account the potential global repercussions if the lender collapses. Firms that fall short of either measure will have to boost their capital ratios, though the BOE will force them to take “less intensive” action if they only miss the SRP. “With bank investing these days, you need to be more cognizant of the economy, the rate environment and crucially of the regulator,” especially if one bank does much worse than its peers in a stress test, said Barrington Pitt Miller at Janus Capital in Denver.

It’s what they’re for.

• China’s Bad Banks Serve Zombies, Not Investors (BBG)

China’s zombie companies can rest easy. It’s a shame the same can’t be said for investors in the nation’s banks.The big five lenders, starting with Agricultural Bank of China, plan to set up bad banks that will convert soured debt to equity. Agricultural Bank, Industrial & Commercial Bank of China, Bank of China, China Construction Bank and Bank of Communications will fork out 10 billion yuan ($1.5 billion) each to establish the asset-management companies, Caixin magazine reported. That banks are forging ahead with debt-to-equity swap plans, albeit via asset-management firms they happen to own, is great news for all those struggling steel and construction companies facing potential closure.

State Council guidelines issued last month indicate that zombie corporations – those ailing state firms plagued by overcapacity – can’t count on bailouts, but it’s difficult to determine which ones are actually destined for the scrapheap.The nation’s top lenders, also all backed by Beijing, are unlikely to want to be seen as responsible for mass unemployment by refusing to rescue companies, no matter how dire their situation. In fact, those companies may have an even better chance of getting capital infusions, considering financial institutions will probably be keen to use their investment-banking units to help monetize equity assets.On the face of it, bank investors might also feel relieved that lenders are farming out bad debt to distinct vehicles.

Using an asset-management company should ensure that the equity resulting from the bad-debt switch doesn’t sit on a bank’s balance sheet. That will help lenders conserve precious capital: Had the equity been on their books, they would have had to apply a risk weighting of 400%, and get special approval from the State Council. Structuring it this way will also allow banks to maintain their much-coveted dividends. But dig a bit deeper and you realize this isn’t a scenario that will necessarily play out well, and not just because equity stakes, even those held at arm’s length, are inherently riskier than loans.For one, how will these asset-management firms be funded long term?

The answer is probably by the banks themselves.According to the State Council, the debt-to-equity swaps can be financed by “social capital,” a catch-all phrase that generally includes high-yielding wealth-management products. Those investment structures come with an implicit guarantee from the banks that issue them, as lenders have found in the past when they’ve had to rescue funds in trouble. It’s ironic that just as authorities have been trying to rein in shadow banking, the debt-to-equity swap plan provides an added reason to gorge.

They even push up the yuan a tad to coincide with the publication of the remarks. All under control.

• PBOC Deputy Governor Talks Up Yuan Strength (CNBC)

Comparing the yuan’s recent moves against the dollar misses the currency’s underlying strength of the against a more appropriately watched basket, People’s Bank of China (PBOC) Deputy Governor Yi Gang said in remarks released on Chinese state-run media at the weekend. In a question-and-answer format interview with Xinhua news agency that was posted on the central bank’s website, Yi said the yuan remained a strong and stable currency in the global monetary system, while noting concerns about a slide against the dollar after Donald Trump’s victory in the Nov. 8 presidential election. The yuan plunged to eight-and-a-half year lows versus the dollar last week.

On Monday, the PBOC set the yuan’s central parity rate against the dollar at 6.9042, stronger than the 6.9168 level set on Friday. “Referencing the yuan against a basket of currencies can better reflect the overall competitiveness of a country’s goods and services,” Yi said. Given that economic structures, cycles and interest rate policies differed in various countries, fixating on a single currency was not suitable and may cause the yen to be “over-managed,” he added. Yi said the yuan’s movements were due to domestic factors in the U.S., as they reflected the rise of the greenback on the back of improvements in the U.S. economy and inflation, alongside expectations of a quickening in the pace of Federal Reserve interest rate hikes.

By now it’s time to wonder how massive the protests will be, and where Modi’s reaction will lead.

• Modi’s Rural Supporters May Not Hang On Much Longer (BBG)

The most ardent supporters of Prime Minister Narendra Modi’s surprise currency withdrawal are those you’d least expect: India’s rural poor, who are suffering the most with the prolonged cash shortages. But the backing of many from India’s villages – based on a belief that Modi’s actions will even out the scale of inequality and reduce corruption – may be short-lived. The jury is still out on the political and economic impact of the decision to target unaccounted cash. And it will be another two months before the government releases inflation, industrial production and growth figures – key areas that may be affected by the prime minister’s shock move on Nov. 8 to ban high-denomination notes, taking out 86% of circulating currency.

Meanwhile, five states, including the most populous state of Uttar Pradesh, will go to elections, leaving the ruling Bharatiya Janata Party vulnerable to a voter backlash if one of its major support bases sees no benefit from the demonetization process. To intensify the campaign against the note ban, several opposition parties called for nationwide protests on Monday, saying the process is a political move dressed up as a fight against corruption. It is not clear whether demonetization will eliminate so-called black money, or who will pay the price if it fails, said Arati Jerath, a New Delhi-based author who has written about Indian politics for about four decades. It will take at least another three weeks to gauge the economic and political impact, she said.

Jerath points to the public reaction to Indira Gandhi’s decision to impose a state of emergency in 1975 as an example of how quickly the tide of public opinion can change. Initially people supported the emergency, welcoming improvements in law and order and the punctuality of government officials. Later they turned against Gandhi when they realized its negative effects, particularity arbitrary abuse of power by bureaucrats, she said. If the Modi government fails to address concerns around cash withdrawals and the situation worsens, there could be food shortages, farmers’ distress, layoffs, rising unemployment and a slowdown of the economy. “At the moment people are patient, they are really giving it a chance, waiting and watching,” said Jerath. “If the situation does not improve by the middle of next month, there will be a backlash against demonetization.”

Yeah. Have them all drive Teslas too, right?

• India’s Modi Calls For Move Towards Cashless Society (R.)

Indian Prime Minister Narendra Modi on Sunday urged the nation’s small traders and daily wage earners to embrace digital payment channels, as a cash crunch following the government’s surprise ban on high-value bank notes drags on. Modi, speaking in his monthly address on national radio, said the government understands that millions have been affected by the ban on 500-rupee and 1000-rupees notes, but defended the action. The government says the bank-note ban announced on Nov. 8 is aimed at cracking down on corruption, people with unaccounted wealth, and counterfeiting of notes.

“I want to tell my small merchant brothers and sisters, this is the chance for you to enter the digital world,” Modi said speaking in Hindi, urging them to use mobile banking applications and credit-card swipe machines. “It’s correct that a 100% cashless society is not possible. But why don’t we make a beginning for a less-cash society in India?,” Modi said. “We can gradually move from a less-cash society to a cashless society.” More than 90% of consumer purchases in India are transacted in cash, Credit Suisse estimates. While a smartphone boom and falling mobile data prices have led to a surge in digital payments in recent years, the base still remains low. Modi urged technology-savvy young people to spare some time teaching others how to use digital payment platforms.

Pushing plastic. A new global sport.

• Greek Banks Call For Taxing Cash Withdrawals (Kath.)

Banks are proposing that the government take a series of measures to combat tax evasion, which are centered around reducing the use of cash in favor of increasing online transactions. The proposal that stands out concerns the taxing of cash withdrawals. As bank executives say, cash is easily channeled to the so-called shadow economy, so imposing a tax on withdrawals would drastically reduce transactions in cash and therefore the illegal economy as well.

Lenders are also asking for the compulsory use of cards or other online means for all transactions concerning professions where there are strong indications of tax evasion or cash is used as the main means of payment. Credit and debit cards as well as the new technologies that allow for contactless transactions, such as cell phone apps, should be possible to use even for the smallest transactions, from the purchase of a newspaper to buying a bus ticket, banks argue. The illegal economy in Greece is estimated at some €40 billion every year, with state coffers losing out on tax revenues of around €15 billion per annum.

Pitting real bad policy vs really really bad.

• Trump Faces Dilemma As US Oil Reels From Record Biofuels Targets (R.)

The Obama administration signed its final plan for renewable fuel use in the United States last week, leaving an oil industry reeling from the most aggressive biofuel targets yet as President-elect Donald Trump takes over. The Renewable Fuel Standard (RFS) program, signed into law by President George W. Bush, is one of the country’s most controversial energy policies. It requires energy firms to blend ethanol and biodiesel into gasoline and diesel. The policy was designed to cut greenhouse gas emissions, reduce U.S. reliance on oil imports and boost rural economies that provide the crops for biofuels. It has pitted two of Trump’s support bases against each other: Big Oil and Big Corn.

The farming sector has lobbied hard for the maximum biofuel volumes laid out in the law to be blended into gasoline motor fuels, while the oil industry argues that the program creates additional costs. Balancing oil and farm interests is likely to prove a challenge for Trump, who has promised to curtail regulations on the oil industry but is already being reminded by biofuels advocates of the importance of the program to the American Midwest, where he received strong support from voters on Nov. 8. Oil groups are renewing their calls to change or repeal the program following Wednesday’s announcement, when the Environmental Protection Agency (EPA) set record mandates for renewable fuels – for the first time hitting levels targeted by Congress nearly a decade ago.

The EPA plan is “completely detached from market realities and confirms once again that Congress must take immediate action to remedy this broken program,” said Chet Thompson, President of the American Fuel and Petrochemical Manufacturers, in a statement. It is unclear what Trump’s plans for the program will be and his transition team did not respond to Reuters’ requests for comment. Both camps are expecting an administration receptive to their demands, though both have expressed concern and uncertainty over Trump’s plans for the program, according to experts, industry and political sources.

Pump baby pump.

• Oil Trades Near $46 Amid Skepticism OPEC to Reach Output Deal (BBG)

Oil halted declines near $46 amid skepticism over OPEC’s ability to reach an agreement to cut output and as representatives prepare to meet Monday amid last-minute negotiations over the deal the group aims to formalize Wednesday. Futures were little changed in New York after earlier falling as much as 2% and dropping 4% on Friday. Saudi Arabia for the first time on Sunday suggested OPEC doesn’t necessarily need to curb output and pulled out of a scheduled meeting with non-member producers, including Russia. OPEC will hold an internal meeting in Vienna Monday to resolve its differences, and as part of the final push to reach an agreement, oil ministers from Algeria and Venezuela are heading to Moscow to get the group’s biggest rival on board.

OPEC is heading into the final stretch before its November 30 meeting to adopt a deal first floated in September to collectively reduce output. Saudi Arabia, the group’s de facto leader, is seeking to reverse the pump-at-will policy it supported in 2014 and is now pushing members to agree how they will individually shoulder the first production cuts in eight years. Saudi oil minister Khalid Al-Falih said the oil market will recover in 2017 even without cuts. “The market is currently quite pressured by the uncertainties raised from various reports, including Saudi Arabia pulling out of Monday’s talks with non-OPEC nations,” Seo Sang-young at Kiwoom Securities said by phone. “It’s also highly suspicious whether OPEC will keep its promises even if it achieves an accord because the members are constantly raising production.”

Wanna bet?

• Fillon Would Beat Le Pen in Both Rounds of Election – Polls (BBG)

Francois Fillon, the former prime minister who won the French Republican presidential nomination Sunday, would beat National Front leader Marine Le Pen in both rounds of a presidential election, two polls showed. In a scenario where incumbent Francois Hollande is running along with former Economy Minister Emmanuel Macron, Fillon would win the first round with 32% of the vote against 22% for Le Pen and 8% for Hollande, according to a poll by Odoxa for France 2 television. In the run-off two weeks later, he would defeat Le Pen 71% to 20%. A Harris Interactive poll showed Fillon winning the first round with 26% support compared with 24% for Le Pen and 9% for either Hollande or Manuel Valls as leader of the Socialists. The same survey showed him winning against Le Pen in the second round 67% to 33%.

“What needs to be considered… is what is good for the country.” Translation: what is good for the incumbent class.

• Renzi Faces Pressure To Stay In Office As Italy Referendum Defeat Looms (R.)

When a handful of European leaders met Barack Obama in Berlin this month to say their goodbyes, Italian Prime Minister Matteo Renzi informed the group that he may well lose power before the U.S. president. While Obama leaves office on Jan. 20, Renzi has promised to resign if he does not win a Dec. 4 referendum on constitutional reform, opening the way for renewed political instability in the eurozone’s third largest economy. “I have no desire to hang around if I lose,” Renzi told the gathering, according to a diplomatic source who was at the low-key Nov. 18 meeting. Opinion polls now predict Renzi’s defeat, in what would be the third big anti-establishment revolt by voters this year in a major Western country, following Brexit and the U.S. election of Donald Trump.

Pressure is mounting on Renzi to drop his threat and instead agree to remain in power to deal with the fallout from a ‘No’ vote, including the risk of a fullblown banking crisis. Obama himself said in October that Renzi should “hang around for a while no matter what” and a number of businessmen and senior government officials contacted by Reuters said they feared the worst if the prime minister abandoned his post. “My personal opinion is that Renzi should stay,” Industry Minister Carlo Calenda said in an interview on Friday. “What needs to be considered… is what is good for the country.” The Italian president could appeal to Renzi’s sense of responsibility and ask him to seek a new mandate from parliament. His response might depend on the size of any defeat, with one advisor saying the 41-year-old premier could quit politics altogether if he suffers a huge snub next Sunday.

Is it really that hard to throw out Soros?

• Recount: Losers Who Won’t Lose (Mehta)

President-elect Trump won 306 electoral votes versus Hillary Clinton’s 232 (24% less electoral votes). Similar to 2000, the surrendering party then reversed course and put the nation through a recount, just for the sake of it. What are the odds that such an exercise here would yield successful for Ms. Clinton? Based on statistical randomness of re-assessing voter intent, the chance of Hillary emerging as the victor is far less than 10%. Anything can happen, but these lean odds do not rise to the level of putting our peaceful democracy into the hands of a temptuous recount scheme every time a stung party loses (let alone misleadingly blame it on something else from Russia’s Putin, to sexism, to “in hindsight the popular vote would be reasonable”, to FBI Director Comey).

All Americans should instead focus on how the 6 states that flipped this election, were all economically ignored and all flipped to Donald Trump. The only viable path for a Hillary Clinton victory at this stage is to astoundingly uncover a wide-spread (across three states) fraud. And that’s equally unlikely, since the basis for the voting aberrations occurred in less populated counties and anyway the three states employ three different voting mechanisms, so the fraud would have had to somehow occur through different transmission vehicles (paper voting, and electronic voting) and we would require a speedy judicial resolution for states such as Pennsylvania that sidestepped back-up recordings from their direct voting equipment.

We should note the following statistical facts about the electoral vote in the three recount states:
10 votes, Wisconsin (Trump leads by 0.9 %age points)
20 votes, Pennsylvania (Trump leads by 1.1 %age points)
16 votes, Michigan (Trump leads by 0.2 %age points)

Given that Mr. Trump won by 74 electoral votes, Ms. Clinton would need to flip all three states noted above, in order to liquidate this deficit (i.e., >74/2 = >37 votes). The leads described above however, among 4.4 million voters from these three states, is highly statistically significant on a state-level (and certainly when all three states are combined). It would be remarkably unlikely that we would arbitrarily second-guess every one of these millions of voters’ intents and, convert any (certainly let alone all) of these three states.

Debt Rattle November 11 2016

Nov 112016

November 11, 2016 Posted by Raúl Ilargi Meijer at 11:00 am Finance Tagged with: drones, EM, end of growth, Leonard Cohen, rupee, Trump, tunnel vision, yuan 5 Responses »

Leonard Cohen 21 September 1934 – 7 November 2016

• The End of Growth and the Rise of Trump (Tyee)

• Donald Trump Is Moving To The White House, And Liberals Put Him There (Frank)

• Rupee Note Cancellation Plunges India Into Panic (G.)

• Emerging-Markets Rout Deepens as Europe Shares, Commodities Rise (BBG)

• China Household Debt/GDP More Than Doubled In Under 10 Years To 40.7% (R.)

• China’s Yuan Set for Steepest Weekly Loss Since January (BBG)

• Judge Tells Trump University Litigants They Would Be Wise To Settle (R.)

• The Unbearable Smugness Of The Press (CBS)

• Obama Asks Congress For Extra $11 Billion, Wants More Lethal Drones (BBG)

• BoE Chief Economist Andy Haldane: Economics Suffers From Tunnel Vision (BBG)

• London Property Market Is “Tanking By The Day” (BBG)

• Leonard Cohen Knew Things About Life, And If You Listened You Could Learn (G.)

Andrew Nikiforuk calls me an economist. Now we’ve heard it all… Still, good to see people are listening.

• The End of Growth and the Rise of Trump (Tyee)

The economist Raúl Ilargi Meijer wrote an interesting essay explaining why there is a Donald Trump in September. He credited Trump’s rise to “the most important global development in decades.” That development, says Meijer, is “the end of global economic growth, which will lead inexorably to the end of centralization (including globalization). It will also mean the end of the existence of most, and especially the most powerful, international institutions.” “In the same way it will be the end of — almost — all traditional political parties, which have ruled their countries for decades and are already today at or near record low support levels (if you’re not clear on what’s going on, look there, look at Europe!),” he wrote.

“This is not a matter of what anyone, or any group of people, might want or prefer, it’s a matter of ‘forces’ that are beyond our control, that are bigger and more far-reaching than our mere opinions, even though they may be man-made.” The end of growth is tied inexorably to the deplorable quality of energy now being fracked and mined in North America. Bitumen and fracked oil just can’t support rich societies because these poor resources invite debt, environmental ruin and poor returns. Meijer adds “that the politico-econo-media machine churns out positive growth messages 24/7 goes some way towards explaining the lack of acknowledgement and self-reflection, but only some way. The rest is due to who we ourselves are. We think we deserve eternal growth.”

In the end, neither candidate talked about what mattered: growing climate anarchy; unrelenting economic stagnation; declining energy returns; and the onslaught of robots and algorithms in the workplace, government and home. Trump should remind us of two things and Camus, who understood the nature of tragedy, has expressed them well. The first is that “Nothing is more despicable than respect based on fear.” Trump embodies that sentiment. The second is the growing absurdity of it all. “Basically, at the very bottom of life, which seduces us all, there is only absurdity, and more absurdity. And maybe that’s what gives us our joy for living, because the only thing that can defeat absurdity is lucidity.”

Not too impressed with Thomas Frank’s piece overall, but he gives a reasonable expose of what the Dems did wrong.

• Donald Trump Is Moving To The White House, And Liberals Put Him There (Frank)

Start at the top. Why, oh why, did it have to be Hillary Clinton? Yes, she has an impressive resume; yes, she worked hard on the campaign trail. But she was exactly the wrong candidate for this angry, populist moment. An insider when the country was screaming for an outsider. A technocrat who offered fine-tuning when the country wanted to take a sledgehammer to the machine. She was the Democratic candidate because it was her turn and because a Clinton victory would have moved every Democrat in Washington up a notch. Whether or not she would win was always a secondary matter, something that was taken for granted. Had winning been the party’s number one concern, several more suitable candidates were ready to go.

There was Joe Biden, with his powerful plainspoken style, and there was Bernie Sanders, an inspiring and largely scandal-free figure. Each of them would probably have beaten Trump, but neither of them would really have served the interests of the party insiders. And so Democratic leaders made Hillary their candidate even though they knew about her closeness to the banks, her fondness for war, and her unique vulnerability on the trade issue – each of which Trump exploited to the fullest. They chose Hillary even though they knew about her private email server. They chose her even though some of those who studied the Clinton Foundation suspected it was a sketchy proposition. To try to put over such a nominee while screaming that the Republican is a rightwing monster is to court disbelief.

If Trump is a fascist, as liberals often said, Democrats should have put in their strongest player to stop him, not a party hack they’d chosen because it was her turn. Choosing her indicated either that Democrats didn’t mean what they said about Trump’s riskiness, that their opportunism took precedence over the country’s well-being, or maybe both. Clinton’s supporters among the media didn’t help much, either. It always struck me as strange that such an unpopular candidate enjoyed such robust and unanimous endorsements from the editorial and opinion pages of the nation’s papers, but it was the quality of the media’s enthusiasm that really harmed her. With the same arguments repeated over and over, two or three times a day, with nuance and contrary views all deleted, the act of opening the newspaper started to feel like tuning in to a Cold War propaganda station.

From email I received yesterday: “People have been wiped out overnight. He had given a tax amnesty initially, declare your black money and pay a 30% tax. Later that increased to 50% and finally this. Huge wealth confiscation. Property prices expected to collapse. Dunno why such a shock move was implemented? The economy is doing well, low levels of debt overall, banks under state control and he was doing the right things. Income tax reform and a sales tax would’ve been much better to widen the tax base. India has major issues but when I went earlier this year to Delhi the development and progress is obvious. Infrastructure is pretty good, super airport, air quality is horrid, malls springing up everywhere and housing rental is very affordable but buying is ludicrously expensive. Economy was booming. Perfect black swan event. Only 3 people knew- The PM, FM and CB governor.”

• Rupee Note Cancellation Plunges India Into Panic (G.)

Queues of angry, panicked Indians wound around bank buildings in Mumbai, the financial capital, on Thursday morning, two days after the prime minister, Narendra Modi, announced that 500- and 1,000-rupee notes, worth around £6 and £12, would be taken out of circulation. In a televised announcement on Tuesday night, Modi had urged Indians not to rush to banks, as they would have until the end of 2016 to deposit cash in their accounts. But with the high-value notes withdrawn from Wednesday in an effort to combat corruption, black-market trade and tax evasion, many were left without cash for day-to-day expenses. Banks were closed on Wednesday, and reopened on Thursday morning with a cap on cash withdrawals. ATMs remained closed, so currency was only available from the banks.

Newspapers around the country reported long queues at branches, as people scrambled to exchange their high-value banknotes for 100-rupee bills. At the Churchgate branch of the Bank of India, dozens of people queued in the midday heat, filling out deposit forms as a security guard barked instructions. “Life is completely paralysed,” said Maganbhai Solanki, who had been waiting in line for four hours. “On the news, they said banks would open at 8am today. I got here at 8.01,” he said. “Now, it’s noon, but I’m still here. Around 50 people in the queue ahead of me got tired of waiting and left but I have no choice. There’s no money in the house. We only have 500- and 1,000-rupee notes which are worth nothing. We didn’t even have enough to pay the milkman this morning.”

The dollar comes home.

• Emerging-Markets Rout Deepens as Europe Shares, Commodities Rise (BBG)

An emerging-markets selloff deepened amid concern developing economies will face capital outflows and weakening exports once Donald Trump is in The White House, while optimism surrounding his policies spurred gains in commodities and European shares rose. MSCI gauges of emerging-market equities and currencies sank to four-month lows since the election of Trump, who pledged to restrict imports and add fiscal stimulus that’s seen hastening interest-rate hikes by the Federal Reserve. More than $1 trillion was wiped off the value of bonds this week, something that’s happened only once before in the last two decades, as Treasuries lost the most since 2009. Shanghai shares entered a bull market, while industrial metals had their best week in more than 25 years.

Developing-nation assets have been roiled since Trump’s surprise win in Tuesday’s vote and central banks in India and Indonesia were said to have intervened Friday in support of their currencies. Futures indicate an 80% chance that the Fed will raise rates next month and expectations are building for more increases. Ten-year Treasury yields have climbed above 2% for the first time since January amid speculation the president-elect’s plans to cut taxes and boost spending will widen the U.S. budget deficit and stoke inflation. “There’s been a big rotation out of emerging markets into U.S. dollar assets,” said Jeffrey Halley, a market strategist at Oanda Asia Pacific Pte in Singapore. “An emerging market is a market you can’t emerge from in an emergency. It’s one of the best lessons I’ve ever learnt in 30 years in the market. When everybody runs for the door at the same time, the door’s very small.”

Why repeat the west’s mistakes? What’s in it for Xi?

• China Household Debt/GDP More Than Doubled In Under 10 Years To 40.7% (R.)

China’s household debt as a proportion of GDP has more than doubled to 40.7% in less than 10 years. While developed nations have higher rates of household debt, Chinese families are much more leveraged because income is lower and so proportionately the costs of social welfare from pensions to healthcare are much higher. At the end of 2014, the out-of-pocket health spend in China as a%age of total expenditure was 32%, compared to 9.7% in Britain and 11% in the United States, World Health Organization data shows. “Household debt leverage is very alarming, even though the aggregate amount is controllable,” said Wan Zhe, chief economist at China National Gold Group Corporation, visiting researcher at Chongyang Institute for Financial Studies, Renmin University of China.

“The first issue is that household debt has risen too quickly, the second is that it has risen too quickly as a proportion” of GDP and disposable income, said Wan. Underlining these concerns, authorities are trying to calm a property rally. In the latest move, regulators told banks to limit the issuance of home loans, the Shanghai Securities Journal reported on Thursday. The balance of retail mortgages at the end of the third quarter hit 16.8 trillion yuan ($2.5 trillion), more than a third higher than a year earlier, China central bank data shows. More broadly, consumer debt financed by Chinese banks has grown sharply, from 3.8 trillion yuan at the end of 2007 to 17.4 trillion yuan at the end of last year, a compound annual growth rate of 21%, Fitch Ratings said in a report.

But the growth in income has been much more modest, rising 6.3% in January to September compared with the year-earlier period, the weakest pace since 2013 when the National Bureau of Statistics first started issuing the data. “The rapid growth in outstanding (consumer) loan balances has been accompanied by an increase in NPLs (non-performing loans) across all segments of consumer debt,” the Fitch report said.

It just keeps falling, that’s all it does anymore.

• China’s Yuan Set for Steepest Weekly Loss Since January (BBG)

China’s currency is heading for its steepest weekly drop since January, when a series of weaker fixings roiled global financial markets, as Donald Trump’s election victory boosted the dollar and raised the threat of a more protectionist America. Bonds tumbled. The yuan fell 0.06% to 6.8134 at 10:07 a.m. in Shanghai, approaching the 6.83 level at which China pegged the currency after the 2008 global financial crisis. The exchange rate has fallen 0.9% this week to a six-year low as Trump’s unexpected win spurred a tectonic shift in fund flows, with emerging-market currencies tumbling with bonds while stocks rally. The 10-year yield on government debt climbed about 10 basis points this week, the most since May 2015.

Bloomberg’s dollar index held near an eight-month high amid speculation the Federal Reserve will boost interest rates to cap inflation as a Trump-led administration steps up spending. Trump has also threatened punitive tariffs on China’s imports. Accelerating declines in the yuan are a turnaround from the August-September period, when policy makers were suspected of propping up the currency before its entry into the IMF’s reserves basket. “A rally in the dollar has driven the yuan weaker, and the PBOC won’t likely defend the currency at this point because the costs of intervention could be very high under such an environment,” said Irene Cheung at Australia & New Zealand Bank in Singapore. “But if the depreciation accelerates in the coming weeks, there’s still a chance that China could take measures to stabilize the market.”

Potentially messy if used for political purposes.

• Judge Tells Trump University Litigants They Would Be Wise To Settle (R.)

The U.S. judge overseeing a lawsuit against President-elect Donald Trump and his Trump University told both sides they would be wise to settle the case “given all else that’s involved.” Lawyers for the president-elect are squaring off against students who claim they were they were lured by false promises to pay up to $35,000 to learn Trump’s real estate investing “secrets” from his “hand-picked” instructors. Earlier on Thursday, U.S. District Judge Gonzalo Curiel tentatively rejected a bid by Trump to keep a wide range of statements from the presidential campaign out of the fraud trial. Trump owned 92% of Trump University and had control over all major decisions, the students’ court papers say. The president-elect denies the allegations and has argued that he relied on others to manage the business.

Trial is scheduled to begin Nov. 28, and Curiel told lawyers he was not inclined to delay the six-year-old case further. Trump lawyer Daniel Petrocelli said he would ask to put the trial on hold until early next year, in light of the many tasks the magnate has before his inauguration. Curiel said he would allow both sides to file briefs on whether to delay the case. He also indicated they should consider making a deal. “It would be wise for the plaintiffs, for the defendants, to look closely at trying to resolve this case given all else that’s involved,” Curiel said. Petrocelli told reporters after the hearing that Trump might have to be a “little more flexible” about settling the case now that he is president-elect, although the lawyer wasn’t sure his client would was willing.

ANother thing that just continues.

• The Unbearable Smugness Of The Press (CBS)

The mood in the Washington press corps is bleak, and deservedly so. It shouldn’t come as a surprise to anyone that, with a few exceptions, we were all tacitly or explicitly #WithHer, which has led to a certain anguish in the face of Donald Trump’s victory. More than that and more importantly, we also missed the story, after having spent months mocking the people who had a better sense of what was going on. This is all symptomatic of modern journalism’s great moral and intellectual failing: its unbearable smugness. Had Hillary Clinton won, there’s be a winking “we did it” feeling in the press, a sense that we were brave and called Trump a liar and saved the republic. So much for that. The audience for our glib analysis and contempt for much of the electorate, it turned out, was rather limited.

This was particularly true when it came to voters, the ones who turned out by the millions to deliver not only a rebuke to the political system but also the people who cover it. Trump knew what he was doing when he invited his crowds to jeer and hiss the reporters covering him. They hate us, and have for some time. And can you blame them? Journalists love mocking Trump supporters. We insult their appearances. We dismiss them as racists and sexists. We emote on Twitter about how this or that comment or policy makes us feel one way or the other, and yet we reject their feelings as invalid. It’s a profound failure of empathy in the service of endless posturing. There’s been some sympathy from the press, sure: the dispatches from “heroin country” that read like reports from colonial administrators checking in on the natives.

But much of that starts from the assumption that Trump voters are backward, and that it’s our duty to catalogue and ultimately reverse that backwardness. What can we do to get these people to stop worshiping their false god and accept our gospel? We diagnose them as racists in the way Dark Age clerics confused medical problems with demonic possession. Journalists, at our worst, see ourselves as a priestly caste. We believe we not only have access to the indisputable facts, but also a greater truth, a system of beliefs divined from an advanced understanding of justice. You’d think that Trump’s victory – the one we all discounted too far in advance – would lead to a certain newfound humility in the political press. But of course that’s not how it works.

To us, speaking broadly, our diagnosis was still basically correct. The demons were just stronger than we realized. This is all a “whitelash,” you see. Trump voters are racist and sexist, so there must be more racists and sexists than we realized. Tuesday night’s outcome was not a logic-driven rejection of a deeply flawed candidate named Clinton; no, it was a primal scream against fairness, equality, and progress. Let the new tantrums commence!

How about using the $11 billion to rebuild Syria?

• Obama Asks Congress For Extra $11 Billion, Wants More Lethal Drones (BBG)

An $11.6 billion defense request that President Barack Obama sent Congress includes funds to buy more lethal drones for U.S. commandos fighting Islamic State and other terrorists as well as networks to counter the pilotless aircraft those groups are now using. The extra war-related funding requested Thursday for the current fiscal year would provide $5.8 billion for the Pentagon to continue operations in Iraq and Afghanistan. An equal amount for the State Department and the U.S. Agency for International Development would support counterterrorism efforts, refugee aid and improved embassy security, Obama said in a letter to lawmakers. While the amount requested for lethal drones is small, it provides a glimpse into a largely hidden phase of U.S. special operations in Iraq.

The White House requested $46.5 million to buy 535 Lethal Miniature Aerial Missile Systems and related equipment requested by the Special Operations Command Central due to “urgent operational needs.” The drone request is described as “for analytics, targeting, training, and equipment to support deployed U.S. Forces.” The only U.S. fighters in Iraq who are actively engaged in combat against Islamic State are in the highly classified Expeditionary Targeting Force set up a year ago to kill or capture militants. U.S. special operations forces also conduct raids in Afghanistan. The administration also requested, without elaboration, $150 million to develop and field within two years a network of “counter-small unmanned aerial systems at sites” in Iraq.

A rare light in the profession.

• BoE Chief Economist Andy Haldane: Economics Suffers From Tunnel Vision (BBG)

Bank of England Chief Economist Andy Haldane says economics suffers from tunnel vision and there’s a need to bring new ideas to the profession to make it relevant again. Haldane, whose speeches and papers have analyzed policy using everything from technology to biology, said his industry remains an “insular, self-referential discipline,” and this has to change. “One of the potential failings of the economics profession is that it may have borrowed too little from other disciplines – a methodological mono-culture,” he said in a speech on Thursday in Cambridge, England. An issue that dogs current economic models is forecasting performance, he said, noting the failure to predict the financial crisis and, since then, IMF world growth projections that “consistently over-estimated” the recovery.

It’s a timely point for BOE policy makers, who last week revised their projections for growth and inflation in the wake of Brexit. Haldane said economists need to improve their understanding of the world because rapid changes in economies have social and political implications. “It has been argued that these models were not designed to explain such extreme events” as the financial crisis, he said. “For me, this is not really a defense. If our models are silent about these events, this jeopardizes the very thing that makes economics interesting and economic policy important.” In his speech, he cited economist George Shackle’s description of the economy as a “kaleidoscope, a collision of colors subject to on-going, rapid and radical change.”

Haldane said agent-based models used in physics, chemistry and other sciences could enable a “fundamental changes in model dynamics.” Using it at the BOE has helped a better understanding of the housing market and the interaction of buyers, lenders and renters. Contrasting ABM models with traditional micro-founded economic ones, Haldane said the big picture usually looks very different from the small one. “Aggregating from the microscopic to the macroscopic is very unlikely to give sensible insights into real world behavior, for the same reason the behavior of a single neuron is uninformative about the threat of nuclear winter.”

It will take a long time before people understand this is a positive thing.

• London Property Market Is “Tanking By The Day” (BBG)

London’s real estate market, hurt by the Brexit vote, is “tanking by the day,” Green Property Chairman Stephen Vernon said. The firm, which has closed its London office, is waiting for an opportunity to buy into the market at lower values, the 66-year-old said at a conference in Dublin. Vernon would consider buying a real estate company, raising a fund or buying a portfolio of assets in London, he said. “It’s absolutely fantastic what’s going on,” said Vernon, who sold most of the firm’s properties in Ireland before values there crashed in 2008. A decision to re-enter the London market would be through a venture separate from Green Property and focus on commercial real estate, a spokesman for the investor said.

Office values in the City of London financial district fell the most in at least seven years in July after Britain voted to leave the European Union. Home prices in the U.K. capital fell for a fifth month in August, the worst streak since 2009, as higher taxes and the referendum result damped demand. The referendum result, higher levies on business premises and a rise in the stamp duty sales tax have led to a reduction in London commercial property values, Derwent London Plc Chief Executive Officer John Burns said in a statement on Thursday. “The central-London office market faces a number of challenges, including heightened global uncertainty, and business activity is likely to slow,” he said.

I am the one who loves changing from nothing to one.

• Leonard Cohen Knew Things About Life, And If You Listened You Could Learn (G.)

Leonard Cohen was always the grown-up in the room. He was young once, of course, but the world never saw much of the modestly successful poet and novelist from Montreal. He was already 33 — ancient by 60s standards — when he gazed out from the sepia-tinted, photo-booth snapshot on the cover of 1967’s Songs of Leonard Cohen with his shirt, tie and smart side-parting. The face suggested that he’d been around the block a few times; the voice and words confirmed it. The man knew things about life and if, you listened closely, you might learn something. The truth was that Cohen felt as lost as anybody. What gave his work its uncommon gravitas wasn’t that he knew the answers but that he never stopped looking.

He searched for clues in bedrooms and warzones, in Jewish temples and Buddhist retreats, in Europe, Africa, Israel and Cuba. He tried to flush them out with booze and drugs and seduce them with melodies. And whenever he managed to painfully extract some nugget of wisdom, he would cut and polish it like a precious stone before resuming the search. Funny about himself but profoundly serious about his art, he liked to describe his songs as “investigations” into the hidden mechanics of love, sex, war, religion and death – the beautiful and terrifying truths of existence. A Leonard Cohen song is an anchor flung into a churning sea. It has the kind of weight that could save your life. [..] When the chief executive of Columbia Records heard that A&R man John Hammond wanted to sign Cohen in 1967, he reportedly said: “A 32-year-old poet? Are you crazy?” But Hammond, who had launched Billie Holiday, Bob Dylan and Aretha Franklin, didn’t give up. During the first recording session for Songs of Leonard Cohen he shouted encouragement: “Watch out, Dylan!”

At the time, Bob Dylan was rock’n’roll’s preeminent poet. Cohen really was a poet but he wasn’t rock’n’roll. Steeped instead in literary discipline, French chanson and Jewish liturgy, his work suggested old-fashioned patience. To Dylan a song was a lump of wet clay to be moulded before it sets fast; to Cohen it was a slab of marble to be chipped into shape with immense dedication and care. Cohen never stopped being a poet or lost his reverence for words. You’ll find some erratic musical choices in his back catalogue but not a single careless line; nothing disposable. Years later, he said he had only one piece of advice for young songwriters: “If you stick with a song long enough it will yield. But long enough is beyond any reasonable duration.” When you sense that a songwriter has spent that long finding the right words, the least you can do is pay attention.

Debt Rattle November 2 2016

Nov 022016

November 2, 2016 Posted by Raúl Ilargi Meijer at 10:11 am Finance Tagged with: Brexit, debt, earthquake, FBI, hack, Hillary, investigation, MI5, oligarchy, shipping, Trump, yuan 2 Responses »

Unknown Petersburg, Virginia. Group of Company B, U.S. Engineer Battalion 1864

• Asian Markets Show Jitters as Polls Narrow Gap Between Trump and Clinton (G.)

• Goldman Says Weakening Yuan Is Behind Iron Ore Rally (BBG)

• Maersk’s Profit Drops 43% On Overcapacity In Shipping Industry (BBG)

• In Greece, Property Is Debt (NY Times)

• Hillary Clinton Is Irreparably Damaged, Even If She Wins (MW)

• 370 Economists, Including 8 Nobel Laureates: ‘Do Not Vote for Trump’ (WSJ)

• Clintons Are Under Multiple FBI Investigations as Agents Are Stymied (Martens)

• Five Separate FBI Cases Are Probing Clinton’s Inner Circle (DM)

• Top DOJ Official In Clinton Probe ‘Kept Podesta Out Of Jail’ in 1998 (F.)

• Hillary Clinton: Wall Street’s Favorite Enemy (R.)

• Can The American People Defeat The Oligarchy That Rules Them? (PCR)

• Why Is MI5 Making Such A Fuss About Russia? (G.)

• Central Banks and the Revenge of Politics (Issing)

• Brexit Complexity Set to Overwhelm Politicians (G.)

• Oil Drilling Thought To Have Caused 1933 Killer Earthquake In California (R.)

• Turkey Rejects Europe’s ‘Red Line’ On Press Freedom After Detentions (R.)

• It’s Now -Temporarily- Legal to Hack Your Own Car (IEEE)

Time to get nervous.

• Asian Markets Show Jitters as Polls Narrow Gap Between Trump and Clinton (G.)

Asian shares stumbled and the US dollar was on the defensive on Wednesday amid signs investors were becoming spooked by polls narrowing the gap between US presidential nominees Donald Trump and Hillary Clinton. Market anxiety has deepened over a possible Trump victory given uncertainty on the Republican candidate’s stance on issues including foreign policy, trade relations and immigration, while Clinton is viewed as a candidate of the status quo. Stocks across Asia Pacific saw a broad selloff on Wednesday with the Nikkei in Japan down by 1.8% at 4am GMT. There were also steep falls in Australia where the ASX/S&P 200 benchmark index was down almost 1.5%, with falls of 1.3% in South Korea and Hong Kong as markets took a lead from a sharp drop on Wall Street overnight.

The main European markets were also expected to begin the day in the red when they open later, according to futures trading. The tumultuous presidential race appeared to tighten after news that the FBI was reviewing more emails as part of a probe into Clinton’s use of a private email server. While Clinton held a five-percentage-point lead over Trump, according to a Reuters/Ipsos opinion poll released on Monday, other polls showed Trump ahead by 1-2 %age points. That pushed the US S&P500 Index down to a four-month closing low on Tuesday. The CBOE volatility index, often seen as an investors’ fear gauge, briefly rose to a two-month high, above 20%.

In the currency market, traders sold the dollar partly as they suspect Trump would prefer a weaker dollar given his protectionist stance on international trade. The euro rose to a three-week high of $1.1069, up about 2% from its seven-and-a-half-month low of $1.0851 hit just over a week ago. Against the yen, the dollar slipped to 104.03 yen from three-month high of 105.54 yen set on Friday. Koichi Yoshikawa at Standard Chartered Bank said: “If you had a long dollar position on the view that the dollar would gain because Clinton would win, you would surely close that position because her victory is less certain.”

There’s that picture again of massive inventory in ports.

• Goldman Says Weakening Yuan Is Behind Iron Ore Rally (BBG)

Iron ore’s eye-catching rally to the highest since April is probably due to the weakening of the yuan, according to Goldman Sachs, which said that China’s currency may decline further against the dollar and help to sustain prices of the raw material. Prices surged last month as losses in the yuan prompted some local investors to move into dollar-linked assets, including iron ore, analysts Hui Shan, Amber Cai and Christian Lelong said in a report received Wednesday. Should the Federal Reserve raise interest rates by the end of the year, there’s scope for further yuan weakness, they wrote in the Nov. 1 note. Iron ore has rallied even as signs of robust supply multiply, including a buildup in stockpiles at ports in China.

While some analysts have sought to explain the jump by pointing to higher coal prices as a driver, Goldman said that didn’t stack up as a reason, targeting the yuan’s drop instead. The Chinese currency has sagged as local policy makers signaled they are willing to allow greater currency flexibility amid a slump in exports and rise in the dollar. “By our estimates, about 60% of the iron ore price rally in October can be explained by the yuan depreciation,” the analysts said. Iron ore may be the first in line to benefit from onshore investment flows into commodities as the “futures curve is almost always backwardated, making long iron ore a positive-carry trade,” they said, referring to bets on gains.

Global trade bites again.

• Maersk’s Profit Drops 43% On Overcapacity In Shipping Industry (BBG)

A.P. Moller-Maersk, owner of the world’s largest container line, reported a 43% decline in third-quarter profit as the shipping industry suffers from overcapacity. Net income fell to $429 million in the third quarter compared with $755 million in the same period a year earlier, the Copenhagen-based company said in a statement Wednesday. That missed the average estimate of $501 million in a Bloomberg survey of 15 analysts. “The result is unsatisfactory, but driven by low prices,” Chief Executive Officer Soren Skou said in the statement. “We generally perform strongly on cost and volume across businesses.” Maersk said its underlying profit for 2016 will be “below” $1 billion. Previously, the company had said the full-year result would be “significantly” below 2015’s $3.1 billion.

An excess of vessels and weak trade growth have driven container lines to try to under-bid each other on the rates they offer clients. The climate has proven lethal for some industry members, with South Korea’s biggest line Hanjin Shipping Co. filing for bankruptcy protection in August. Earlier this week, Japan’s three biggest container lines said they plan to merge their operations in an efforts to return to profit. Maersk’s response has been to cut costs. On Wednesday it said costs at Maersk Line declined 14% in the quarter, but that was outpaced by a 16% decline in freight rates. The shipping line reported a net operating loss after tax of $116 million compared with a profit by the same measure of $264 million a year earlier as freight rates fell 16%.

The destruction continues unabated and unopposed. “Construction of homes has collapsed, dropping by 95% from 2007 to 2016.”

• In Greece, Property Is Debt (NY Times)

At law courts throughout Greece, people are lining up to file papers renouncing their inheritance. Not necessarily because some feckless uncle left them with a pile of debt at the end of his revels; they are turning their backs on what used to be a pillar of Greece’s economy and society: real estate. Growing personal debt, declining incomes and ever higher taxes as Greece’s depression grinds on have turned property and the dream of easy money into dread of a catastrophic burden. The figures are clear. In 2013, two years after a property tax was introduced (previously, real estate tax revenue came mainly from transfers or conveyance taxes), 29,200 people declined to accept their inheritance, according to the Justice Ministry. In 2015, the number had climbed to 45,627, an increase of 56% in two years.

Reports from across the country suggest that this year, too, large numbers of people are refusing to inherit. “This can be very painful,” said Giorgos Voukelatos, a lawyer. “People may lose their family home. Because if the father or mother had debts, the child might be unemployed and unable to carry this weight as well.” The growing aversion to property is evident in the drop in business at notaries public. The national statistics service, Elstat, reported in July that in 2014 there were 23,221 deeds in which living parents transferred property to their children, down from 90,718 in 2008. The number of wills drawn up or notarized has been steady through the crisis, at around 30,000 annually, suggesting that many inheritances being rejected were not part of formal wills. (More than 120,000 people die each year.)

The desire to inherit used to be so great that some took it upon themselves to give fortune a hand. Greeks were stunned in 1987 when the police uncovered a gang that had killed at least eight rich elderly people after forging their wills. The plot’s leader was a lawyer and former mayor of an Athens suburb; accomplices included a notary public and a gravedigger. Murder Inc., as the news media called it, was seared into popular consciousness as an instance in which criminals acted out a common desire. Today, people are more likely to run away from real estate than be tempted to kill for it.

The collapse of the real estate market shows why. The total number of transactions dropped by 74% from 2004 to 2014. People once hoped that if they came into property they could sell it and live easier; now they fear that they will be unable to sell it and the taxes will drag them down. If they did find a buyer, they would be unlikely to gain much, as prices of apartments have fallen by 41% since 2008, according to the Bank of Greece. Construction of homes has collapsed, dropping by 95% from 2007 to 2016. With no end to the crisis in sight, people will continue to dread coming into property.

An entire campaign blinded by hubris.

• Hillary Clinton Is Irreparably Damaged, Even If She Wins (MW)

We don’t know whether the reopening of the FBI probe of Hillary Clinton’s emails will cost her the election. It may be that she will still emerge the winner after next Tuesday’s vote, or that Donald Trump’s momentum from the Wikileaks emails, Obamacare’s failures, and Clinton’s flawed candidacy were going to carry him to victory in any case. What we do know is that whoever wins, we are in for a fiasco in politics that will make even this fiasco of a campaign pale by comparison. There is hardly any scenario that is too far-fetched. Even if the polls are right and Clinton’s lead translates into an electoral victory, she will be so damaged going into office that her chances of getting anything done will be virtually nil. In this sense alone, Trump’s claim that this scandal is “worse than Watergate” could prove to be true.

As an incumbent, Richard Nixon at least had an administration in place when he won re-election in 1972, though it took nearly another two years before he was forced to resign under threat of impeachment. Clinton is likely to be stymied from the start, especially if the ongoing investigations into her email practices and the Clinton Foundation lead to further damaging disclosures. For one thing, we now have the precedence of Watergate, and Republicans, who are sure to retain the House and now probably the Senate, will not let go. There is hardly a chance that it will all end well for Clinton and that she will be exonerated because what is already known has many Republicans convinced that she is guilty at the very least of mishandling classified documents and perhaps obstruction of justice.

While the immediate attention in the wake of last week’s disclosure about reopening the email investigation has focused on FBI Director James Comey, the real conundrum in all this concerns his boss, Attorney General Loretta Lynch. Lynch fatally compromised her position by meeting with former President Bill Clinton just days before the original investigation was closed without a grand jury ever considering the evidence. And now her failure to block Comey’s disclosure — while leaking that she wanted to — is another ethical lapse. Other reports indicate that she attempted to quash the investigation into the Clinton Foundation. It is hard to see how she can remain in office even if Clinton wins and wants to keep her. Her resignation — or even impeachment — seems inevitable with Republicans out for blood.

The damage done to the whole Clinton entourage through the machinations exposed in the Wikileaks emails means that many of them – Huma Abedin, Cheryl Mills, John Podesta, Neera Tanden – will be virtually untenable in any position of responsibility in a new Clinton administration. And this is the best-case scenario for Clinton. We all know what the worst-case scenario is.

Hilarious. 370 economists making Trump’s case for him: “The economists object to Mr. Trump for questioning the legitimacy of economic data produced by institutions such as the Bureau of Labor Statistics.” Everybody questions the BLS. Except for 370 economists?!

• 370 Economists, Including 8 Nobel Laureates: ‘Do Not Vote for Trump’ (WSJ)

A group of 370 economists, including eight Nobel laureates in economics, have signed a letter warning against the election of Republican nominee Donald Trump, calling him a “dangerous, destructive choice” for the country. Signatories include economists Angus Deaton of Princeton University, who won the economics Nobel last year, and Oliver Hart of Harvard University, who was one of the two Nobel winners this year. The letter is notable because it is less partisan or ideological than such quadrennial exercises, and instead takes issue with Mr. Trump’s history of promoting debunked falsehoods.

“He misinforms the electorate, degrades trust in public institutions with conspiracy theories and promotes willful delusion over engagement with reality,” said the signatories, which also include Paul Romer, the new chief economist at the World Bank, and Kenneth Arrow, the 1972 Nobel winner. The economists object to Mr. Trump for questioning the legitimacy of economic data produced by institutions such as the Bureau of Labor Statistics. They say he hasn’t proposed credible solutions to reduce budget deficits and that he has promoted misleading claims about trade and tax policy. They also chide Mr. Trump for failing to “listen to credible experts” and for promoting “magical thinking and conspiracy theories over sober assessments of feasible economic policy options.”

[..] Peter Navarro, a Trump adviser and professor at the University of California, Irvine, said the economics profession has been so wrong about the impact of trade deals, including both the North American Free Trade Agreement in 1994 and the accession of China to the World Trade Organization in 2001, that it has little standing to criticize Mr. Trump’s position on those pacts. Tuesday’s letter “is a headline, whatever, and then they wind up being just so horribly wrong,” Mr. Navarro said. “You shouldn’t believe economists or Nobel Prize winners on trade.”

“You don’t need a Ph.D. in economics to know Trump’s plan to cut taxes, reduce regulation, increase oil, gas, and clean coal production, and eliminate our trade deficit by increasing exports and reducing imports will significantly increase growth, boost wages and generate trillions in new tax revenues,” he said. “This new letter is an embarrassment to an economics profession which continues to insist bad trade deals are good for America—a classic case of reality running roughshod over textbook trade theory.”

“Not only was Bill Clinton’s wife under an FBI investigation at the time [..] but his own charitable foundation was also under investigation, a fact that was unknown at the time to the public and the media.

• Clintons Are Under Multiple FBI Investigations as Agents Are Stymied (Martens)

Current and former FBI officials have launched a media counter-offensive to engage head to head with the Clinton media machine and to throw off the shackles the Loretta Lynch Justice Department has used to stymie their multiple investigations into the Clinton pay-to-play network. Over the past weekend, former FBI Assistant Director and current CNN Senior Law Enforcement Analyst Tom Fuentes told viewers that “the FBI has an intensive investigation ongoing into the Clinton Foundation.” He said he had received this information from “senior officials” at the FBI, “several of them, in and out of the Bureau.” That information was further supported by an in-depth article in the Wall Street Journal by Devlin Barrett. According to Barrett, the “probe of the foundation began more than a year ago to determine whether financial crimes or influence peddling occurred related to the charity.”

Barrett’s article suggests that the Justice Department, which oversees the FBI, has attempted to circumvent the investigation. The new revelations lead to the appearance of wrongdoing on the part of U.S. Attorney General Loretta Lynch for secretly meeting with Bill Clinton on her plane on the tarmac of Phoenix Sky Harbor International Airport on the evening of June 28 of this year. Not only was Bill Clinton’s wife under an FBI investigation at the time over her use of a private email server in the basement of her New York home over which Top Secret material was transmitted while she was Secretary of State but his own charitable foundation was also under investigation, a fact that was unknown at the time to the public and the media.

The reports leaking out of the FBI over the weekend came on the heels of FBI Director James Comey sending a letter to members of Congress on Friday acknowledging that the investigation into the Hillary Clinton email server was not closed as he had previously testified to Congress, but had been reopened as a result of “pertinent” emails turning up.

The Daily Mail reoprts on ‘persons of interest’: Huma Abedin, Terry McAuliffe, Cheryl Mills, Phillipe Reines, John Podesta, Tony Podesta, Doug Band, Justin Cooper, Anthony Weiner

• Five Separate FBI Cases Are Probing Clinton’s Inner Circle (DM)

The extent to which Hillary Clinton’s key advisers are now the focus of major FBI investigations is becoming clear. The Clintons’ long-term inner-circle – some of whom stretch back in service to the very first days of Bill’s White House – are being examined in at least five separate investigations. The scale of the FBI’s interest in some of America’s most powerful political fixers – one of them a sitting governor – underlines just how difficult it will be for Clinton to shake off the taint of scandal if she enters the White House. There are, in fact, not one but five separate FBI investigations which involve members of Clinton’s inner circle or their closest relatives – the people at the center of what has come to be known as Clintonworld.

The five known investigations are into: Anthony Weiner, Huma Abedin’s estranged husband sexting a 15-year-old; the handling of classified material by Clinton and her staff on her private email server; questions over whether the Clinton Foundation was used as a front for influence-peddling; whether the Virginia governor broke laws about foreign donations; and whether Hillary’s campaign chairman’s brother did the same. The progress of the Clinton Foundation investigation and that into McAuliffe was first reported by the Wall Street Journal. The FBI does not generally comment on investigations, so it is entirely possible there are more under way. Here are the advisers and consiglieri – and how the FBI is looking at them:

Rep. Gowdy has said he thinks Kadzik will do his job properly.

• Top DOJ Official In Clinton Probe ‘Kept Podesta Out Of Jail’ in 1998 (F.)

The Justice Department official in charge of informing Congress about the newly reactivated Hillary Clinton email probe is a political appointee and former private-practice lawyer who kept Clinton Campaign Chairman John Podesta “out of jail,” lobbied for a tax cheat later pardoned by President Bill Clinton and led the effort to confirm Attorney General Loretta Lynch. Peter Kadzik, who was confirmed as assistant attorney general for legislative affairs in June 2014, represented Podesta in 1998 when independent counsel Kenneth Starr was investigating Podesta for his possible role in helping ex-Bill Clinton intern and mistress Monica Lewinsky land a job at the United Nations.

“Fantastic lawyer. Kept me out of jail,” Podesta wrote on Sept. 8, 2008 to Obama aide Cassandra Butts, according to emails hacked from Podesta’s Gmail account and posted by WikiLeaks. Kadzik’s name has surfaced multiple times in regard to the FBI’s investigation of Democratic presidential nominee Hillary Clinton for using a private, homebrewed server. After FBI Director James Comey informed Congress on Thursday the FBI was reviving its inquiry when new evidence linked to a separate investigation was discovered, congressional leaders wrote to the Department of Justice seeking more information. Kadzik replied. “We assure you that the Department will continue to work closely with the FBI and together, dedicate all necessary resources and take appropriate steps as expeditiously as possible,” Kadzik wrote on Oct. 31.

Can’t keep your enemies any closer than this.

• Hillary Clinton: Wall Street’s Favorite Enemy (R.)

Hillary Clinton began her presidential campaign by promising to do what it takes to rein in Wall Street. Boosted by Wall Street’s toughest critics, U.S. senators Bernie Sanders and Elizabeth Warren, the Democratic candidate has declared “the deck is still stacked in favor of those at the top” and said she would raise bank fees and tighten banking regulations. She has encouraged regulators to break up too-risky banks. And yet, Wall Street appears unperturbed by the prospect of a Clinton presidency. In fact, the banking industry has supported Clinton with buckets of cash and stocks have sold off on days when the Clinton campaign stumbles. Privately, bankers say that they trust her to remain a pragmatist who will keep the current regulatory regime laid down by the Dodd-Frank Wall Street reform legislation passed in 2010.

“I don’t think Clinton wakes up thinking about Wall Street,” one senior banking industry lobbyist said. There are hints in apparently leaked email discussions among Clinton’s campaign staff that bankers are not far off the mark when they count on her to tread lightly. Pressed during the campaign by progressive Democrats to call for a revival of the Glass-Steagall Act that would require separation of commercial and investment banking, Clinton ultimately refused. She also weighed another progressive favorite – a tax on financial transactions- but instead recommended a far narrower plan to tax only canceled orders by high speed traders. Ultimately, what bankers most like about Clinton is that she is not Donald Trump.

Many financiers fear her unorthodox Republican rival could disrupt global trade, damage geopolitical relationships and rattle markets, industry analysts and participants say. “Those are the kind of things that corner offices think about,” said Karen Shaw Petrou of Federal Financial Analytics, whose firm advises financial firms about U.S. regulatory policy. “The overriding concern about Trump has dominated people’s thinking.” [..] People who work for hedge funds and private equity firms have contributed more than $56 million to Clinton’s presidential campaign and the supporting groups that face no legal cap on donations. Trump’s campaign and related groups received just $243,000 from donors in the same sector, according to data from the Center for Responsive Politics.

“During an election it is OK to announce that a candidate for president is cleared but it is not OK to say that a candidate is under investigation.”

• Can The American People Defeat The Oligarchy That Rules Them? (PCR)

Aren’t you surprised that Hillary and the presstitutes haven’t blamed Putin for FBI director Comey’s reopening of the Hillary email case? But the presstitutes have done the next best thing for Hillary. They have made Comey the issue, not Hillary. According to US Senator Harry Reid and the presstitutes, we don’t need to worry about Hillary’s crimes. After all, she is only a political woman feathering her nest, just as political men have done for ages. Why all this misogynist talk about Hillary? The presstitutes’ cry is that Comey’s alleged crime is far more important. This woman-hating Republican violated the Hatch Act by telling Congress that the investigation he said was closed is now reopened. A very strange interpretation of the Hatch Act. During an election it is OK to announce that a candidate for president is cleared but it is not OK to say that a candidate is under investigation.

In July 2016 Comey violated the Hatch Act when he, on orders from the corrupt Obama Attorney General, announced Hillary clean. In so doing, Comey used the prestige of federal clearance of Hillary’s violation of national security protocols to boost her standing in the election polls. Actually, Hillary’s standing in the polls is based on the pollsters over-weighting Hillary supporters in the polls. It is easy to produce a favorite if you overweight their supporters in the poll questions. If you look at the crowds attending the two candidate’s public appearances, it is clear that the American people prefer Donald Trump, who is opposed to war with Russia and China. War with nuclear powers is the big issue of the election.

Hillary’s problem has the ruling American Oligarcy, for which Hillary is the total servant, concerned. What are they going to do about Trump if he wins? Will his fate be the same as John F. Kennedy, Robert Kennedy, Martin Luther King, George Wallace? Time will tell. Or will a hotel maid appear at the last minute in the way that the Oligarchy got rid of Dominique Strauss-Kahn? All of the American and Western feminists, progressives, and left-wing remnant fell for the obvious frame-up of Strauss-Kahn. After Strauss-Kahn was blocked from the presidency of France and resigned as Director of the IMF, the New York authorities had to drop all charges against Strauss-Kahn. But Washington succeeded in removing Strauss-Kahn as a challenge to its French vassal, Sarkozy.

Because it seems cheap and easy.

• Why Is MI5 Making Such A Fuss About Russia? (G.)

If I had cornflakes for breakfast (which I don’t), I would have choked on them, reading Andrew Parker’s view of the threat posed by Russia, not just to the world at large – that is a commonplace of the “new cold war” discourse – but to the stability of the UK. With the majority vote for Brexit against the strong preference of Scotland and Northern Ireland for remain, we have shown ourselves quite capable of inflicting potentially fatal harm to our national stability all by ourselves. Why would we need Russia to do it for us? That was a knee-jerk reaction to the main thrust of the MI5 chief’s first national newspaper interview in the agency’s history. But a second, more substantial, response chased behind it in the form of a rather basic, and recurrent, question.

Why is the UK establishment in general, and UK intelligence in particular, so fixated on a supposed threat from Russia? The cold war is a quarter-century behind us. The Warsaw Pact was dissolved; the Soviet Union collapsed. Today’s Russia has three quarters of the territory but only half the population of the old Soviet Union. Its GDP, whether overall or per capita, is far below that of the US, or ours. Its 2015 military budget took 5% of that – $70bn in actual money – less than an eighth of the nearly $600bn spent by the US. “Tsar” Vladimir Putin may have played a weak hand magnificently, as judged by admirers and detractors alike, but a weak hand is still a weak hand.

If Russia really harbours ambitions to reconstitute an empire, its only success to date is the expensive (in every respect) reacquisition of Crimea, a contested no-man’s land of ragtag rebels in the rust belt of eastern Ukraine, and two miniature enclaves inside independent Georgia. That recent “show of force”, when the might of the Russian navy made its stately progress through the English Channel, demonstrated only the obsolescence of the erstwhile superpower’s fleet. In the same interview, Parker disclosed that there were around 3,000 “violent Islamic extremists in the UK, mostly British”, and that cyber, not just in Russia’s hands, was the threat of the future. So let me repeat the question: why does Russia remain bogeyman-in-chief?

Here are a few ideas. The first is that blaming Russia carries little cost. Russia is not China. Investment is not a big consideration. For all sorts of reasons, political relations have long been dire. Applying the same virulent rhetoric to terrorism conducted in the name of Islam, on the other hand, risks fomenting social and cultural strife here at home. A second reason, now as in the past, is that blaming Russia aligns us comfortably with the US, where stalwarts in Congress and at the Pentagon have never emerged from their old thinking about the threat. The Russia card has been played to exhaustion during this presidential campaign, to the point where it could swing the election – and I don’t mean in Donald Trump’s favour. A third factor is the consensus about a strong and malevolent Russia that still rules the “expert” community, and will probably do so for a few years yet – helped along by the hatchet-faced Putin.

When their unwarranted powers are finally taken away from them it will be too late.

• Central Banks and the Revenge of Politics (Issing)

The reputation of central banks has always had its ups and downs. For years, central banks’ prestige has been almost unprecedentedly high. But a correction now seems inevitable, with central-bank independence becoming a key casualty. Central banks’ reputation reached a peak before and at the turn of the century, thanks to the so-called Great Moderation. Low and stable inflation, sustained growth, and high employment led many to view central banks as a kind of master of the universe, able – and expected – to manage the economy for the benefit of all. The depiction of US Federal Reserve Chair Alan Greenspan as “Maestro” exemplified this perception. The 2008 global financial crisis initially bolstered central banks’ reputation further.

With resolute action, monetary authorities made a major contribution to preventing a repeat of the Great Depression. They were, yet again, lauded as saviors of the world economy. But central banks’ successes fueled excessively high expectations, which encouraged most policymakers to leave their monetary counterparts largely responsible for macroeconomic management. Such “expectational” and, in turn, “operational” overburdening has exposed monetary policy’s true limitations. In other words, central banks’ good reputation now seems to be backfiring. And “personality overburdening” – when trust in the success of monetary policy is concentrated on the person at the helm of the institution – means that individual leaders’ reputations are likely to suffer as well.

Yet central banks cannot simply abandon their new operational burdens, particularly with regard to financial stability, which, as the 2008 crisis starkly demonstrated, cannot be maintained by price stability alone. On the contrary, a period of low and stable interest rates may even foster financial fragility, leading to a “Minsky moment,” when asset values suddenly collapse, bringing down the whole system. The limits of inflation targeting are now clear, and the strategy should be discarded. Central banks now have to reconcile the need to maintain price stability with the responsibility – regardless of whether it is legally mandated – to reduce financial vulnerability. This will not be easy, not least because of another new operational burden that has been placed on many central banks: macro-prudential and micro-prudential supervision.

They’re already completely lost by the looks of it.

• Brexit Complexity Set to Overwhelm Politicians (G.)

Managing Britain’s exit from the EU is such a formidable and complex challenge that it could overwhelm politicians and civil servants for years, senior academics have warned. Theresa May has announced she will trigger article 50 – the two-year process of negotiating a separation from the EU – by the end of March next year. The government will also publish a great repeal bill, which will transfer all EU-originated laws into British law, so that MPs can decide how much they want to discard. A report from The UK in a Changing Europe, an independent group of academics led by Prof Anand Menon of King’s College London, warns that this will only be the start of the process of extricating Britain from the EU and establishing new relationships with other member states.

“Brexit has the potential to test the UK’s constitutional settlement, legal framework, political process and bureaucratic capacities to their limits – and possibly beyond,” Menon said. The group of experts, commissioned by the Political Studies Association, found that identifying and transposing the legislation to be included in the great repeal bill – and then deciding what to keep and what to ditch – will be a daunting task for civil servants. They also warn that while article 50, as set out in the Lisbon treaty, concerns the terms of a divorce with the rest of the EU – including what share of EU liabilities the UK should take on, for example – it is unclear whether the process can allow for parallel negotiations on Britain’s future status. And they suggest the repatriation of decision-making in key policy areas including agriculture, the environment and higher education to Britain from Brussels could affect the balance of power between Westminster and the devolved parliaments – another major constitutional headache for politicians.

Wonder how far this kind of research will lead.

• Oil Drilling Thought To Have Caused 1933 Killer Earthquake In California (R.)

Several damaging Los Angeles-area earthquakes of the 1920s and 1930s, including the deadliest ever in southern California, may have been brought on by oil production during the region’s drilling boom of that era, US government scientists have reported. The findings of a possible link between oil extraction and seismic events in the LA basin do not apply to modern industry practices but suggest the natural rate of quake occurrences in the region may be lower than previously calculated, the scientists said. The study’s authors, Susan Hough and Morgan Page of the US Geological Survey, stressed a distinction between their results and separate research attributing a growing frequency of quakes in Oklahoma and elsewhere to underground wastewater injection associated with fossil fuel production.

The new study, published in the Bulletin of the Seismological Society of America, also noted that early 20th-century industry techniques differed greatly from today, so the findings “do not necessarily imply a high likelihood of induced earthquakes at the present time”. The report suggested four major Los Angeles-area quakes in 1920, 1929, 1930 and 1933 were triggered by early drilling methods in which oil was extracted without water being pumped into the ground to replace it, causing the ground to subside. This could have artificially placed more pressure on seismic faults near oilfields. The most devastating event was the so-called Long Beach earthquake of 10 March 1933, a 6.4-magnitude quake that ruptured the Newport-Inglewood fault along the coast, toppling scores of buildings and killing 115 to 120 people – the highest death toll on record from a southern California earthquake.

“..seeking to precipitate the coup through “subliminal messages” in their columns before it happened..”

• Turkey Rejects Europe’s ‘Red Line’ On Press Freedom After Detentions (R.)

Turkey’s prime minister said he had no regard for Europe’s “red line” on press freedom on Tuesday and warned Ankara would not be brought to heel with threats, rejecting criticism of the detention of senior journalists at an opposition newspaper. Police detained the editor and top staff of Cumhuriyet, a pillar of the country’s secularist establishment, on Monday, on accusations that the newspaper’s coverage had helped precipitate a failed military coup in July. The United States and European Union both voiced concern about the move in Turkey, a NATO ally which aspires to EU membership. European Parliament President Martin Schulz wrote on Twitter that the detentions marked the crossing of ‘yet another red-line’ against freedom of expression in the country.

“Brother, we don’t care about your red line. It’s the people who draw the red line. What importance does your line have,” Prime Minister Binali Yildirim told members of his ruling AK Party in a speech in parliament. “Turkey is not a country to be brought in line with salvoes and threats. Turkey gets its power from the people and would be held accountable by the people.” Prosecutors accuse staff at Cumhuriyet, one of few media outlets still critical of President Tayyip Erdogan, of committing crimes on behalf of Kurdish militants and the network of Fethullah Gulen, a U.S.-based cleric blamed for orchestrating the July coup attempt. Journalists at the paper were suspected of seeking to precipitate the coup through “subliminal messages” in their columns before it happened, the state-run Anadolu agency said.

Good to know, right? You don’t really own your car. Or anything else that has software in it.

• It’s Now -Temporarily- Legal to Hack Your Own Car (IEEE)

You may own your car, but you don’t own the software that makes it work— that still belongs to your car’s manufacturer. You’re allowed to use the software, but in the past, trying to alter it in any way (including fixing it by yourself when it breaks or patching security holes) was a form of copyright infringement. iFixit, Repair.org, the Electronic Frontier Foundation (EFF), and many others think this is ridiculous, and they’ve been lobbying the government to try to change things. A year ago, the U.S. Copyright Office agreed that people should be able to modify the software that runs cars that they own, and as of last Friday, that ruling came into effect. It’s good for only two years, though, so get hacking. The legal and technical distinction between physical ownership and digital ownership is perhaps most familiar in the context of DVD movies.

You can go to the store and buy a DVD, and when you do, you own that DVD. You don’t, however, own the movie that comes on it: Instead, it’s more like you own limited rights to watch the movie, which is a very different thing. If the DVD is protected by Digital Rights Management (DRM) software, the Digital Millennium Copyright Act (DMCA) says that you are not allowed to circumvent that software, even if you’re just trying to watch the movie on a different device, change the region restriction so that you can watch it in a different country, or do any number of other things that it really seems like you should be able to do with a piece of media that you paid 20 bucks for.

Cars work in a similar way. You own the car as a physical object, but you only have limited rights to the software that controls it, because the car’s manufacturer holds the copyright on that software. This prevents you from making changes to the software, even if those changes are to fix problems or counter obsolescence, as well as preventing you from investigating the security of the software, which can have very serious and direct consequences for you as the owner and driver. It’s also worth pointing out that (especially in older vehicles like the 1995 Volvo 940 Turbo belonging to a certain anonymous journalist) relatively simple computerized parts can cost a ridiculous amount of money to replace because there is no legal alternative besides buying a new one from the manufacturer, who hasn’t made them in 20 years and would much rather you just bought an entirely new car anyway.

Debt Rattle October 26 2016

Oct 262016

October 26, 2016 Posted by Raúl Ilargi Meijer at 9:52 am Finance Tagged with: Antarctic, AT&T, bankruptcy, employment, euro, Hillary, oil, Syria, Trump, war, yuan Comments Off

Dorothea Lange Depression refugee family from Tulsa, Oklahoma 1936

• The Euro Has Been A Disaster For Southern European Production (Gefira)

• Washington: Don’t Think It’s Over When Trump Loses (Steve Keen)

• 213 North American Oil Industry Companies Have Now Declared Bankruptcy (FF)

• China Tightens Capital Controls Amid Yuan’s Continuing Slide (Nikkei)

• London House Prices Forecast to Plunge as Brexit Chokes Market (BBG)

• AT&T Is Spying On Americans For Profit (DB)

• The US Is Currently Bombing Seven Countries (PF)

• Trump Says Clinton Policy On Syria Would Lead To World War Three (R.)

• Most Americans Do Not Feel Represented By Democrats Or Republicans (G.)

• The Biggest F*ck Ever Recorded In Human History (Michael Moore)

• Antarctic Glaciers Are Melting at a ‘Staggering’ Rate (Gizm.)

Why it has to stop. Or rather, why it will be stopped.

• The Euro Has Been A Disaster For Southern European Production (Gefira)

Some say that the common currency prevents less productive economies from cheating by weakening their national currencies and forces them to become more efficient and competitive. Industrial production data shows that it is not the case. Italy, France, Greece and Portugal have not only stopped producing more; they are producing now less than in 1990! The decay started immediately after the introduction of the euro in 2002! The OECD industrial production data analysis leads to the following conclusions: 1. since 1990 industrial production (manufacturing and construction included) has been growing in volume at large, even in the most developed countries; 2. the disproportion between industrial output in Germany and two other biggest euroarea economies, Italy and France, occurred already just after the 2001-2002 crisis; 3. Southern Europe’s economies have lost their ability to rebound in industrial production alongside the adoption of the euro.

1. Industrial output can increase In most of the most developed countries in the world industrial production has grown in volume since 1990, although a great deal of manufacturing capacities have been moved from the West to the emerging markets. Moreover, in countries like the USA, Israel, Switzerland, Austria and Germany the output has surpassed the 2008 pre-crisis levels. However, if we take a look at the euroarea or the Group of Seven (G7), then numbers are still lower than in 2008 but definitely higher than in 1990.

2. The euroarea has a problem A closer look at the European industrial production numbers gives a clear signal: something bad has happened after 2000. Before the introduction of euro, production trends ran more or less in the same direction. Meanwhile after the 2001-2002 crisis, French and Italian output did not rebound, while production in Germany expanded enormously and was able to reach the 2008 level quickly after the last crisis. Industry in France and Italy not only has not rebounded but also has started to curb.

3. Southern Europe will not rebound with the euro
Countries with a sovereign currency can easily build up their economies because of one simple mechanism: depreciation. A relatively strong currency (strong in comparison to the economic condition) would not have to be a problem for Italy or Greece if there still were some capacities for more debt. Then internal consumption could prop up industrial production. But Spain, Greece, Italy and Portugal have had neither a weak sovereign currency nor the possibility of incurring more debt.

Industry is very important for the economy, as it creates jobs and innovations. The euroarea in the current form is preventing Southern Europe’s industry from developing because of a different type of economy there. “Roman” economies are not worse than than Germany’s. They just need other tools, so restricting all these various economies in the German fashion will destroy the euro as well as the European unity.

Steve Keen on which employment numbers are actually relevant. Curious to see how many people think Hillary’s got it in the bag. As an example, here’s a Bloomberg poll that just came out:

• Washington: Don’t Think It’s Over When Trump Loses (Steve Keen)

Trump’s fans certainly have their “dark fantasies”, but Washington and Krugman have a “bright fantasy” if they believe that unemployment is genuinely low. My favourite and unimpeachable proof that this is false is an easily-obtained data series: the percentage of Americans aged 25-54 who have a job. While the “Unemployment Rate” is back within half a per cent of its pre-crisis low, the percentage of Americans aged 25-54 who have a job today is 2% lower than it was before the crisis. Perhaps an even more important fact that explains the anger behind Trump (and Sanders too, before he was eliminated by the Democratic Party’s peculiar primary process) is that the employment rate actually peaked in 2000, and even after this recovery, it is still 4% lower than in 2000 (78% today versus 82% in 2000).

What that means in terms of people with jobs is even more telling. The number of people aged 25-54 with a job in the USA peaked at 104.7 million in December 2007. It bottomed at 100.3 million in October 2013, and as of February 2015 (the most recent data) it was 101.2 million. So when Washington is talking about achieving “full employment” again, there are still more than 3 million less people employed today than in 2007. Demographic change has caused this segment of the population to decline since December 2007—from 126 million then to 125 million in February 2015—but that still means 2 million more people are unemployed today than in 2007. So if you look at the unemployment rate, everything is wonderful. That seems to be what Washington insiders—all with well-paying jobs—are doing. But if you look at the employment rate, the economy is still in the doldrums. Which series is telling the truth about the US economy?

The employment to population ratio is telling the truth, because it’s derived by asking employers how many people they have on their payroll. The unemployment rate, on the other hand, lies about the real level of unemployment, because it is derived by asking individuals whether they fulfil a number of criteria, including whether they have looked for a job in the last 4 weeks. The employment ratio accurately tells you the number of people receiving a salary; the unemployment ratio does not accurately tell you who is not receiving one. It’s no comfort to someone not receiving a salary to be told that they are not also unemployed, according to the official definition. Their justified reaction is to tell the “official definition” what to do with itself.

A few billion here and a few billion there in debt.

• 213 North American Oil Industry Companies Have Now Declared Bankruptcy (FF)

Fewer and fewer oil exploration and production companies are declaring bankruptcy. But more oilfield service companies are. So far this month, only one North American E&P firm filed for Chapter 11 protection, according to data released on Tuesday by the Dallas law firm Haynes & Boone. That’s down from two in September, three in August and four in July. But it’s been an especially tough few months for service companies. As crude prices began crashing in 2014, drillers started idling rigs. That led to fewer jobs for the companies that make their money helping producers pump oil and gas. Moreover, when producers did hire service companies, they often forced them to heavily discount their rates.

Eight service companies filed this month. Seven filed last month, and eight again the month before. Almost 50 have filed in the last six months, half of the 108 over two years. In total, 213 North American oil and gas companies have now filed for bankruptcy since the start of 2015, listing more than $85 billion in debt. The most recent exploration firm: the private oil and gas company Mountain Divide, based in Montana, filed on Oct. 14, and listed $83 million in debt. On the oilfield services side, Houston-based Key Energy Services filed on Monday, with more than $1 billion in debt. And Basic Energy Services, headquartered in Fort Worth, said Monday it had reached an agreement with debt holders to file by Tuesday.

While at the same time letting Chinese foreign purchases escalate.

• China Tightens Capital Controls Amid Yuan’s Continuing Slide (Nikkei)

China has toughened restrictions on capital flows to prevent a negative feedback loop between a weakening yuan and capital flight. The State Administration of Foreign Exchange has introduced new capital measures in areas such as Shanghai and Guangzhou since the beginning of autumn, asking foreign and regional banks to cap the amount of foreign currency they will sell to customers during 2016. These limits, though ostensibly up to banks’ discretion, are set by negotiation with authorities and so are essentially directed by the government, a financial sector source said. A gag order has been imposed surrounding the measures, the source said. Some banks apparently have set steep exchange rates to pre-emptively curb foreign currency sales, a practice that could pose issues for foreign companies in China trying to repatriate earnings, for example.

China’s trade has flagged in recent months, with exports dropping 10% in September from the year-earlier level in dollar terms. The prospect of an interest rate hike in the U.S., meanwhile, has market players expecting further declines in the yuan’s value. Stashing assets abroad, rather than keeping them in China, is increasingly seen as the safer option. This view has led to further selling of the yuan, giving rise to a downward spiral that capital controls aim to break. Both the foreign exchange regulator and the People’s Bank of China have given banks several directives this year to curb outflows and the currency’s slide. Institutions are asked to report on corporate clients’ plans for buying foreign currency. Large fund transfers that involve foreign currency purchases must be explained by the institutions ahead of time. Individuals traveling overseas are asked to make reservations when exchanging money.

The yuan continues to depreciate despite these efforts. The central bank Tuesday set its daily guidance rate for the Chinese currency at 6.77 yuan to the dollar – just a little shy of the 6.82- to 6.83-to-the-dollar range at which the yuan was fixed for nearly two years following the September 2008 financial crisis. At the time, the goal was to prevent the currency from strengthening to stave off an economic slump. The concern now is that the yuan will become weaker and capital will flow out.

The best thing to could happen in Britain.

• London House Prices Forecast to Plunge as Brexit Chokes Market (BBG)

London property prices are set to fall next year as uncertainty about Britain’s exit from the EU damps the U.K. housing market, according to the Centre for Economics and Business Research. London, and especially the priciest areas of the capital’s housing market, will be most affected, with prices dropping 5.6% in 2017, according to the consultancy’s predictions. Across the U.K., while property value growth will accelerate to 6.9% in 2016, it’s set to slow to 2.6% next year. “Nervousness and uncertainty are starting to show,” said Kay Daniel Neufeld, an economist at Cebr. “We expect to see house-price growth across the U.K. slowing considerably in the fourth quarter of 2016, a trend that is set to continue in 2017.”

While the housing market was already facing headwinds from tax changes before June’s EU referendum, investors are becoming increasingly nervous about the possibility of a so-called hard Brexit. That could see the U.K. giving up membership of Europe’s single market for goods and services to secure greater control of immigration. Accelerating inflation, increasing unemployment and slowing business investment are all set to weigh on house prices, while curbs on migration and a retreat from the single market could slow demand from international buyers, the Cebr said.

Wait till we find out what Google does.

• AT&T Is Spying On Americans For Profit (DB)

In 2013, Hemisphere was revealed by The New York Times and described only within a Powerpoint presentation made by the Drug Enforcement Administration. The Times described it as a “partnership” between AT&T and the U.S. government; the Justice Department said it was an essential, and prudently deployed, counter-narcotics tool. However, AT&T’s own documentation—reported here by The Daily Beast for the first time—shows Hemisphere was used far beyond the war on drugs to include everything from investigations of homicide to Medicaid fraud. Hemisphere isn’t a “partnership” but rather a product AT&T developed, marketed, and sold at a cost of millions of dollars per year to taxpayers.

No warrant is required to make use of the company’s massive trove of data, according to AT&T documents, only a promise from law enforcement to not disclose Hemisphere if an investigation using it becomes public. These new revelations come as the company seeks to acquire Time Warner in the face of vocal opposition saying the deal would be bad for consumers. Donald Trump told supporters over the weekend he would kill the acquisition if he’s elected president; Hillary Clinton has urged regulators to scrutinize the deal. While telecommunications companies are legally obligated to hand over records, AT&T appears to have gone much further to make the enterprise profitable, according to ACLU technology policy analyst Christopher Soghoian.

“Companies have to give this data to law enforcement upon request, if they have it. AT&T doesn’t have to data-mine its database to help police come up with new numbers to investigate,” Soghoian said. AT&T has a unique power to extract information from its metadata because it retains so much of it. The company owns more than three-quarters of U.S. landline switches, and the second largest share of the nation’s wireless infrastructure and cellphone towers, behind Verizon. AT&T retains its cell tower data going back to July 2008, longer than other providers. Verizon holds records for a year and Sprint for 18 months, according to a 2011 retention schedule obtained by The Daily Beast.

Just so you know.

• The US Is Currently Bombing Seven Countries (PF)

For this fact check, we wondered if the U.S. is bombing seven countries. That at least has been so: In September 2014, PunditFact rated True a bombed-countries claim by Ryan Lizza of The New Yorker. Lizza referred to President George W. Bush and his successor, Barack Obama, in a tweet that said: “Countries bombed: Obama 7, Bush 4.” At the time, the U.S. on Obama’s watch had bombed Afghanistan, Iraq, Pakistan, Somalia, Yemen, Libya and Syria. When we asked Stein for her backup information, spokeswoman Meleiza Figueroa pointed out various web posts including a September 2014 CNN news story stating that Obama had ordered air strikes in seven countries through the bulk of his eight years in the office.

[..] The Bureau of Investigative Journalism, a nonprofit news service based at City University London, maintains a running list of U.S. military actions in a number of countries. The bureau annotates each incident with links to press reports. When we looked, the bureau’s accounts by country indicated the latest U.S drone strike in Pakistan occurred in May 2016; the latest strike in Somalia was in September 2016; and the latest U.S. strikes in Yemen and Afghanistan were in October 2016. Separately, we noticed, the Department of Defense said in an Oct. 11, 2016, web post that countries including the U.S. battling the Islamic State of Iraq and the Levant, or ISIL, have conducted 15,634 air strikes to date – 10,129 in Iraq, 5,505 in Syria – with the U.S. conducting 6,868 in Iraq and 5,227 in Syria. In a Sept. 30, 2016, post, the U.S. Air Force said attacks from the air have affected ISIL’s “ability to fight and conduct operations in Iraq, Syria and Afghanistan.”

Too, in August 2016, the New York Times reported the U.S. had “stepped up a new bombing campaign against the Islamic State in Libya, conducting its first armed drone flights from Jordan to strike militant targets” in Libya’s coastal city of Sirte. That news story quoted Obama saying during a news conference that the airstrikes were critical to helping Libya’s fragile United Nations-backed government to drive Islamic State militants out of Sirte, which the group has controlled since June 2015. Obama promised the air campaign would continue as long as necessary to make sure that the extremist group “does not get a stronghold in Libya,” the newspaper said.

Trump -rightly- mirrors something I said a few days ago in Ungovernability “..her harsh criticism of Putin raised questions about “how she is going to go back and negotiate with this man who she has made to be so evil,” if she wins the presidency.”

• Trump Says Clinton Policy On Syria Would Lead To World War Three (R.)

U.S. Republican presidential nominee Donald Trump said on Tuesday that Democrat Hillary Clinton’s plan for Syria would “lead to World War Three,” because of the potential for conflict with military forces from nuclear-armed Russia. In an interview focused largely on foreign policy, Trump said defeating Islamic State is a higher priority than persuading Syrian President Bashar al-Assad to step down, playing down a long-held goal of U.S. policy. Trump questioned how Clinton would negotiate with Russian President Vladimir Putin after demonizing him; blamed President Barack Obama for a downturn in U.S. relations with the Philippines under its new president, Rodrigo Duterte; bemoaned a lack of Republican unity behind his candidacy, and said he would easily win the election if the party leaders would support him.

“If we had party unity, we couldn’t lose this election to Hillary Clinton,” he said. On Syria’s civil war, Trump said Clinton could drag the United States into a world war with a more aggressive posture toward resolving the conflict. Clinton has called for the establishment of a no-fly zone and “safe zones” on the ground to protect non-combatants. Some analysts fear that protecting those zones could bring the United States into direct conflict with Russian fighter jets. “What we should do is focus on ISIS. We should not be focusing on Syria,” said Trump as he dined on fried eggs and sausage at his Trump National Doral golf resort. “You’re going to end up in World War Three over Syria if we listen to Hillary Clinton.”

[..] On Russia, Trump again knocked Clinton’s handling of U.S.-Russian relations while secretary of state and said her harsh criticism of Putin raised questions about “how she is going to go back and negotiate with this man who she has made to be so evil,” if she wins the presidency.

“Less than half the public (43%) say they have a great deal of confidence that their vote will be counted accurately..”

• Most Americans Do Not Feel Represented By Democrats Or Republicans (G.)

As they go to the polls in a historic presidential election, more than six in 10 Americans say neither major political party represents their views any longer, a survey has found. Dissatisfaction with both Democrats and Republicans has risen sharply since 1990, when less than half held that neither reflected their opinions, according to research by the Public Religion Research Institute (PRRI). The seventh annual 2016 American Values Survey was carried out throughout September among a random sample of 2,010 adults in all 50 states. Both party establishments have been rattled by the outsider challenges of Donald Trump, who was successful in winning his party’s nomination, and Bernie Sanders, who was not. In a year that seems ripe for third-party candidates, Libertarian Gary Johnson and Jill Stein of the Green party are seeking to capitalise but have fallen back in the polls in recent weeks.

61% of survey respondents say neither political party reflects their opinions today, while 38% disagree. 77% of independents and a majority (54%) of Republicans took this position, while less than half (46%) of Democrats agree. There was virtually no variation across class or race. Both Democratic presidential nominee Hillary Clinton and Republican standard bearer Trump continue to suffer historically low favourability ratings, with less than half of the public viewing each candidate positively (41% v 33%). Clinton is viewed less favourably than the Democratic party (49%), but Trump’s low rating is more consistent with the Republican party’s own favourability (36%).

The discontent with parties and candidates extends to the electoral process itself, which Trump claims is rigged against him. Less than half the public (43%) say they have a great deal of confidence that their vote will be counted accurately, while 38% have some confidence and 17% have hardly any confidence. [..] The PRRI found that pessimism about the direction of the US is significantly higher today (74%) than it was at this time during the 2012 presidential race, when 57% of the public said the country was on the wrong track.

Slightly confused: I thought he was pro-Hillary?!

• The Biggest F*ck Ever Recorded In Human History (Michael Moore)

I know a lot of people in Michigan that are planning to vote for Trump and they don’t necessarily agree with him. They’re not racist or redneck, they’re actually pretty decent people and so after talking to a number of them I wanted to write this. Donald Trump came to the Detroit Economic Club and stood there in front of Ford Motor executives and said “if you close these factories as you’re planning to do in Detroit and build them in Mexico, I’m going to put a 35% tariff on those cars when you send them back and nobody’s going to buy them.” It was an amazing thing to see. No politician, Republican or Democrat, had ever said anything like that to these executives, and it was music to the ears of people in Michigan and Ohio and Pennsylvania and Wisconsin – the “Brexit” states.

You live here in Ohio, you know what I’m talking about. Whether Trump means it or not, is kind of irrelevant because he’s saying the things to people who are hurting, and that’s why every beaten-down, nameless, forgotten working stiff who used to be part of what was called the middle class loves Trump. He is the human Molotov Cocktail that they’ve been waiting for; the human hand grande that they can legally throw into the system that stole their lives from them. And on November 8, although they lost their jobs, although they’ve been foreclose on by the bank, next came the divorce and now the wife and kids are gone, the car’s been repoed, they haven’t had a real vacation in years, they’re stuck with the shitty Obamacare bronze plan where you can’t even get a fucking percocet, they’ve essentially lost everything they had except one thing – the one thing that doesn’t cost them a cent and is guaranteed to them by the American constitution: the right to vote.

They might be penniless, they might be homeless, they might be fucked over and fucked up it doesn’t matter, because it’s equalized on that day – a millionaire has the same number of votes as the person without a job: one. And there’s more of the former middle class than there are in the millionaire class. So on November 8 the dispossessed will walk into the voting booth, be handed a ballot, close the curtain, and take that lever or felt pen or touchscreen and put a big fucking X in the box by the name of the man who has threatened to upend and overturn the very system that has ruined their lives: Donald J Trump.

They see that the elite who ruined their lives hate Trump. Corporate America hates Trump. Wall Street hates Trump. The career politicians hate Trump. The media hates Trump, after they loved him and created him, and now hate. Thank you media: the enemy of my enemy is who I’m voting for on November 8. Yes, on November 8, you Joe Blow, Steve Blow, Bob Blow, Billy Blow, all the Blows get to go and blow up the whole goddamn system because it’s your right. Trump’s election is going to be the biggest fuck ever recorded in human history and it will feel good.

“.. like ice cubes rising as a soft drink is poured into a glass.”

• Antarctic Glaciers Are Melting at a ‘Staggering’ Rate (Gizm.)

Scientists have long viewed the Amundsen sea embayment as the Achilles heel of West Antarctica, with papers in the 1970s and ‘80s describing it as “uniquely vulnerable,” “unstable,” and the “weak underbelly” of the continent. The fear, then and now, was that warm ocean waters lapping against the foot of the glaciers could cause the ice to pop up off of its rocky floor, like ice cubes rising as a soft drink is poured into a glass. When ice detaches from its so-called “grounding line,” it kickstarts a chain reaction that can trigger a lot of melting. “When water gets between ice and land, it moves quickly, bringing lots of heat in, and melting the ice above it more rapidly,” said Thomas Wagner, the director of NASA’s polar science program. “The Amundsen sea embayment is a place where we know this is happening.”

Indeed, satellite and radar data show that two of West Antarctica’s largest glaciers, Pine Island and Thwaites, have seen their grounding line retreat many miles since 2000, causing fresh water to pour off the ice and into the ocean. This process is so effective that glaciologists recently declared the total collapse of the Amundsen sea embayment—whose glaciers contain enough water to raise global sea levels by four feet—to be “unstoppable.” Here’s the rub: We still have no idea how quickly all of that ice will go, meaning we have no idea whether to prepare for a lot more sea level rise in ten years, in a generation, or at the end of the century. A new study, led by glaciologist Ala Khazendar of NASA’s Jet Propulsion Laboratory, points to ice disappearing sooner rather than later.

For years, NASA has been conducting an airborne campaign called Operation Ice Bridge, flying across sections of our planet’s north and south polar ice sheets and using ground-penetrating radar to measure changes beneath the surface. When Khazendar examined Ice Bridge’s datasets for the Amundsen sea embayment, he realized that NASA flew almost exactly the same path in 2009 that it did in 2002. “This presented an excellent opportunity to look at how ice thickness changed,” he said.

NOTE: we know our Comments section doesn’t function properly. We’re looking into it.

Debt Rattle October 21 2016

Oct 212016

October 21, 2016 Posted by Raúl Ilargi Meijer at 9:43 am Finance Tagged with: bubble, Dickens, dollar, euro, Greece, hacking, Hillary, lions, Trump, war, yuan Comments Off

Lewis Wickes Hine Game of craps. Cincinnati, Ohio 1908

NICOLE FOSS is the keynote speaker tonight, October 21, at the

Community Solutions Conference
McGregor Hall, Antioch College
Yellow Springs, Ohio
7.30 pm

• Dollar Near 7-Month High As Euro Slides, Asia Slips (R.)

• Another Thing Trump, Hillary Get Wrong In This Election: The National Debt (F.)

• Trump’s Candidacy – the Good and the Bad of It (Stockman)

• China Property Prices Rise At Fastest Pace On Record In September (CNBC)

• Yuan Hits Record Low Against Dollar in Offshore Trading (WSJ)

• China’s Property Frenzy Spurs Risky Business (WSJ)

• China’s Local Governments Are Getting Into The Venture Capital Business (BBG)

• The Sharing Economy is Creating a Dickensian World (Das)

• ‘Lions Hunting Zebras’: Ex-Wells Fargo Bankers Describe Abuses (NYT)

• Washington Foreign Policy Elites Not Sorry To See Obama Go (WaPo)

• Hacking Democracy (ZH)

• Italy Shields Russia From EU Sanctions Threat (EUO)

• Draghi Says Athens Should Focus On Reforms, And The Eurozone On Debt (Kath.)

• 126,956 Greeks Work In Private Sector For €100 Per Month (KTG)

“The European Central Bank removed a source of immediate risk for traders by revealing that it did not discuss tapering its QE program at this month’s meeting..”

• Dollar Near 7-Month High As Euro Slides, Asia Slips (R.)

Asian stocks were mostly lower on Friday as the dollar climbed to seven-month highs against a basket of currencies and dragged down crude oil prices, cooling investor risk appetite. The greenback was boosted by a fall in the euro after the ECB shot down talk it was contemplating tapering its monetary easing – sending the common currency to its lowest since March. MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.3%. South Korea’s Kospi lost 0.4% and Australian stocks shed 0.1%, weighed down by a retreat in energy shares. Singapore fell 0.4% while Shanghai added 0.3%. Japan’s Nikkei rose 0.3% , brushing a six-month high, as the yen weakened against the dollar.

U.S. stocks ended a choppy session on Thursday slightly lower as investors digested the latest round of earnings, with a sharp drop in telecoms offset by gains in healthcare. The ECB left its ultra-loose monetary policy unchanged on Thursday but kept the door open to more stimulus in December, with ECB President Mario Draghi dousing recent market speculation that the central bank may begin tapering its €1.7 trillion asset-buying program. “The European Central Bank removed a source of immediate risk for traders by revealing that it did not discuss tapering its QE program at this month’s meeting,” wrote Ric Spooner, chief market analyst at CMC Markets. “Decisions are being deferred until December pending the outcome of research – meaning that meeting will be a key focus for markets.”

Debt explained in the vein of Steve Keen.

• Another Thing Trump, Hillary Get Wrong In This Election: The National Debt (F.)

As if there aren’t enough things to be upset about as it is, here’s another: neither candidate’s position on the debt and the deficit makes economic sense (something they each reinforced in last night’s Las Vegas debate). If they act on their campaign promises, we will most certainly be facing an economic downturn, if not an outright disaster. 1. Public sector deficits must, by definition, be private sector surpluses. If one entity spends more than it earns (the public sector) then another must earn more than it spends (you and me). This is an inescapable accounting identity. 2. Public sector debt must, by definition, be a private sector asset. If one entity adds liabilities, another adds assets–another inescapable law of accounting. 3. It is impossible for a nation to be forced to default in debt denominated in its own currency. Not unlikely, not improbable, but impossible. This is not my opinion, it’s a fact, albeit a poorly known one.

4. U.S. public debt to foreign countries like China has nothing to do with the budget deficit. It’s a result of the trade deficit. The federal government’s budget could have been in surplus for the past 100 years, but whenever we buy more from China than we sell to them, they have leftover cash which they use to buy our financial assets. These may include but are not limited to Treasury Bills. No amount of budget balancing will affect debt to China. 5. The private sector cannot consistently generate sufficient demand to create jobs for everyone who wants one. As technology and productivity have increased, so it has become more difficult. Entrepreneurs cannot be blamed for adding self-checkout lanes, they have families and stockholders. But it means the store can sell the same volume of output with fewer employees–unemployment therefore rises.

Hence, we need the public sector to spend in deficit so that a.) the private sector can net save and b.) jobs are created to supplement those generated by the market system. And it creates neither a default risk nor inflation–unless we are already at full-employment, which means we don’t need to be spending that much in the first place! It is noteworthy that when, in the midst of the Great Depression, the government decided to try to reduce the deficit, unemployment jumped from 14% (after having fallen from nearly 25%) to 19%. Once WWII hit, however, any worries about government spending went right out the window and unemployment plummeted to 1.9%. There’s no reason we can’t be there right now. Only bad policy can stand in our way.

Dave’s new book, Trumped, is out. “God help America if she becomes president.”

• Trump’s Candidacy – the Good and the Bad of It (Stockman)

America is heading for a devastating financial collapse and prolonged recession that will make the last go-round look tame by comparison. The entire recovery is one giant Potemkin village of phony economics and egregious financial asset inflation. It isn’t even a mixed or debatable story. Beneath the “all is awesome” propaganda of the establishment institutions is a broken system hurtling toward ruin. For example, during the month of July 2016, when the Democrats were convening in Philadelphia to confirm a third Obama term and toast 25-years of Bubble Finance, exactly 98 million Americans in the prime working ages of 25 to 54 years had jobs, including part-time gigs and self-employment. That compares to 98.1 million during July 2000. That’s right. After 16 years of the current regime we have 5 million more prime working age Americans and not a single one of them with a job.

At the same time, the number of persons in households receiving means-tested benefits has risen from 50 million to 110 million. Even as the economic wagon has faltered and become loaded with dependents, however, the financial system has grown by leaps and bounds. For example, during those same 16 years public and private debt outstanding in America has risen from $28 trillion to $64 trillion. The value of publicly traded equity has increased from $25 trillion to $45 trillion. And the net worth of the Forbes 400 has nearly doubled from $1.2 trillion to $2.4 trillion. In a word, the U.S. economy is a ticking time bomb. Main Street economics and Wall Street finance have become radically and dangerously disconnected owing to the reckless falsification of financial markets by the Fed and Washington’s addiction to endless deficits and crony capitalist bailouts and boodle.

There is not a remote chance that this toxic brew can be sustained much longer. Under those circumstances the very last thing America will need in 2017–18 when it hits the fan is a lifetime political careerist and clueless acolyte of the state who knows all the right words and harbors all the wrong ideas. Indeed, during the coming crisis America will need a brash disrupter of the status quo, not a diehard defender. Yet when the Dow index drops by 7,000 points and unemployment erupts back toward double digits, Hillary Clinton’s only impulse will be to double down. That is, to fire-up the printing presses at the Fed from red hot to white heat, plunge the nation’s fiscal equation back into multi-trillion deficits and crank-out Washington’s free stuff like never before.

A combination of a Clinton White House and the devastating day of reckoning just ahead would result in Big Government on steroids. It would also tilt the Imperial City toward war in order to distract the nation’s disgruntled voters in their tens of millions. Indeed, her prospective war cabinet — including Victoria Nuland and Michéle Flournoy — is comprised of the actual architects of Washington’s unprovoked NATO siege on Russia’s own doorsteps. God help America if she becomes president.

And Beijing keeps pretending they want to cool it down.

• China Property Prices Rise At Fastest Pace On Record In September (CNBC)

China property prices rose at the fastest pace on record in September, fueling fears of a market bubble in the world’s second-largest economy. Property prices climbed 11.2% on-year in September in 70 major cities while prices were up 2.1% from August, according to Reuters calculations using data from the National Bureau of Statistics. In August, prices rose 9.2% from a year ago. Home prices in the second-tier city of Hefei recorded the largest on-year gain at 46.8%, compared with on-year gains of 40.3% in August. Top August performer Xiamen posted an on-year rise of 46.5% against an increase of 43.8% in August. Prices in Shenzhen, Shanghai and Beijing rose 34.1%, 32.7% and 27.8% on an annual basis respectively, according to Reuters.

Underpinning the strong growth was simply “debt” said independent analyst, Fraser Howie, who is also co-author of “Red Capitalism” and “Privatizing China.” “A decade ago you could make a case for strong property in China (with) genuine demand and relatively low leverage in the sector. This is certainly not the case now. You are seeing a lot of leverage in the property sector, both retail and commercial,” he told CNBC’s “Squawk Box”. The quick gains in property prices in China came after the Chinese government introduced measures aimed at boosting home sales earlier this year to reduce large inventories in an effort to limit an economic slowdown. Recent fears of overheating, however, prompted local governments in China to announce a flurry of property market cooling measures in recent weeks. Any impact from those measures was not reflected in the latest data.

Despite the property cooling measures, Howie said the broad theme of how the Chinese government was responding to the situation was recurrent. “For five to six years or so, you have on-again-off-again cooling measures in the property market, trying to make property more affordable and it’s still nowhere near affordable,” he added. The Chinese government, he said, “has no clear plan”. “It’s just a bubble, they try to pull it back; they rein it in a bit, they let it go again when it impacts the real economy.”

It’s gettiing time for the IMF to comment on this.

• Yuan Hits Record Low Against Dollar in Offshore Trading (WSJ)

The yuan hit a record low against the U.S. dollar in offshore trading Friday after strong earnings on Wall Street and weakness in the euro boosted the strength of the greenback. The dollar reached a high of 6.75651 against the Chinese currency, which trades freely around the clock in offshore markets such as Hong Kong, its biggest trading center. It was last trading up 0.2% at 6.7582. The yuan has been traded outside China since 2010. Hong Kong’s markets are closed today as a typhoon lashes the city, with the yuan breaching its previous record around 7.41 a.m. local time, typically a time when market liquidity is thin. The People’s Bank of China later set its daily reference rate for the yuan traded in mainland China at 6.7558 against the U.S. dollar.

Onshore, the yuan is allowed to trade 2% either side of this level. The currency last traded at 6.7519 against the greenback, while its offshore counterpart weakened further after the fixing. “Overnight we saw a broadly stronger U.S. dollar,” says Qi Gao, Asia foreign exchange strategist at Scotiabank. He anticipates further strength in the greenback in the weeks running up to the U.S. Federal Reserve’s December meeting, at which the central bank may deliver its first rate increase in a year.

“This is actually what we’re told by banks’ client managers to do to meet [regulatory] requirements.”

• China’s Property Frenzy Spurs Risky Business (WSJ)

Xiong Meifang was about $30,000 short two months ago for a 30% down payment on an $895,000 apartment in the southern part of Beijing. To make up the difference, the 31-year-old graphic designer took out a line of credit from a national bank. She said the bank told her she could use the loan however she wanted. China bans borrowing for down payments. A surge in such financing offered by nonbank lenders earlier this year led to a regulatory clampdown. But as banks increasingly turn to mortgage lending, there are new signs of risky practices. In some instances, banks offer credit lines to borrowers buying apartments with few questions asked. In others, banks work with independent loan brokers or property agents to funnel money into down-payment financing.

Data released Tuesday showed medium- and long-term household loans, almost all of which are mortgages, made up 60% of all new loans created in the third quarter, up from 47% in the second quarter and 23% in the first. Easy credit has fanned a property-buying craze in many Chinese cities this year, helping shore up an otherwise weak economy. Government data on Wednesday showed GDP expanded by 6.7% from a year earlier in the third quarter, matching expectations, largely on the strength of the hot property market and loose monetary policies. In the past two weeks, two dozen cities have asked banks to tighten home-lending standards. Financial regulators are seeking to rein in the relatively new practice of banks working with brokers and others, such as developers, to help home buyers come up with down payments.

[..] On paper, the purpose of the loan can’t be for the home purchase itself. But the company could help arrange a contract with, say, a decorator, to show a bank that the loan would be for home decoration, the representative said, adding that ultimately the bank can’t check how the money is used. [The broker] charges a 3% flat fee on the amount of any loans it helps arrange. “It’s all legal, of course,” said the representative. “This is actually what we’re told by banks’ client managers to do to meet [regulatory] requirements.”

While they have huge debts with the shadow banks. What could go worng?

• China’s Local Governments Are Getting Into The Venture Capital Business (BBG)

China’s next billion-dollar startup could have backing from an investor with more money than Warren Buffett and a knack for promoting spicy duck-neck delicacies. The Hubei provincial government is armed with 547 billion yuan ($81 billion) earmarked for investments that can diversify a job base dependent on steel, mining and cars. And the bureaucrats in the heartland region along the Yangtze River are letting professionals do the work – allocating the money to investment houses Sequoia Capital, TCL Capital and CBC Capital. Local governments across China are getting into the venture-capital business, deploying a combined 3 trillion yuan as the Communist Party resolves to modernize the economy and reduce debt-fueled spending on infrastructure. The money is meant to spur development of biotechnology, internet and high-end manufacturing companies that can replace the stumbling heavy industries sapping economic growth.

“Our focus is more on the sector than the return,” said Wang Hanbing, who oversees $6 billion as chairman of the Yangtze River Industry Fund, one of several using Hubei government money. “We encourage people to bring real jobs back to Hubei.” China is grappling with a profusion of economic difficulties such as declining exports, surging home prices and skyrocketing corporate debt. The State Council signaled last month it had a bigger appetite for venture capital, urging local administrations to play a leading role and promising to level the playing field for foreign VC funds. Policy makers want to curb the proliferation of borrowing by regional authorities to pay for infrastructure projects that prop up growth. Local government financing vehicles borrow on behalf of governments, which often are barred from doing so. Through September, the debt issued by more than 1,600 such vehicles soared 47% from a year ago to 1.5 trillion yuan.

The same effect as globalization: bring down wages..

• The Sharing Economy is Creating a Dickensian World (Das)

Cheerleaders frame the sharing economy in lofty utopian terms: The sharing economy isn’t business but a social movement, transforming relationships between people in a new form of internet intimacy and humanitarianism. Exchanges are economic. Buyers are primarily concerned about access to services at low costs rather than social objectives. Providers are motivated by money, using their assets and labor to get by in an unforgiving and poor economic environment.

The major financial backers of the sharing economy aren’t philanthropists. They are Wall Street and Silicon Valley’s 1%, related venture-capital firms and a few institutional investors, such as sovereign-wealth funds. The amount of capital provided is substantial. Given the normal five-to-seven-year cycle for such investments, the pressure to deliver results will increase, bringing it into conflict with the social or altruistic objectives espoused. Ultimately, the sharing economy will influence how traditional businesses operate. Traditional automobile makers could offer a car-sharing service, such as BMW’s Drive Now. Users can access a car as needed, paying only for usage. These types of changes may decrease rather than increase revenue as it substitutes hiring arrangements for outright purchases.

But perhaps the real issue is that the sharing economy reverses progress in labor markets. Whatever the gains from increased efficiency, it recreates a Dickensian world for a part of the population. Formal employment protects labor from exploitation and deprivation to varying degrees. The sharing economy transfers the risk of economic uncertainty from the employer to the employee with potentially tragic consequences. Most important, the underlying economic premise is false. Consumption constitutes 60%-70% of activity in advanced economies. In 1914, Henry Ford doubled his workers’ pay from $2.34 to $5 a day, recognizing that paying people more would enable them to afford the cars they were producing. Reduction of income levels and employment security ultimately reduces consumption and economic activity, impoverishing most within societies.

They should take the lot of them, everyone involved, and ban them from ever working in banking or finance again.

• ‘Lions Hunting Zebras’: Ex-Wells Fargo Bankers Describe Abuses (NYT)

Mexican immigrants who speak little English. Older adults with memory problems. College students opening their first bank accounts. Small-business owners with several lines of credit. These were some of the customers whom bankers at Wells Fargo, trying to meet steep sales goals and avoid being fired, targeted for unauthorized or unnecessary accounts, according to legal filings and statements from former bank employees. “The analogy I use was that it was like lions hunting zebras,” said Kevin Pham, a former Wells Fargo employee in San Jose, Calif., who saw it happening at the branch where he worked. “They would look for the weakest, the ones that would put up the least resistance.”

Wells Fargo would like to close the chapter on the sham account scandal, saying it has changed its policies, replaced its chief executive and refunded $2.6 million to customers. But lawmakers and regulators say they will not let it go that quickly, and emerging evidence that some victims were among the bank’s most vulnerable customers has given them fresh ammunition. This week, three members of the Board of Supervisors in San Francisco, Wells Fargo’s hometown, introduced a resolution calling on the city to cut all financial ties with the bank. They cited both the recent scandal and past cases — particularly the $175 million that Wells Fargo paid in 2012 to settle accusations that its mortgage brokers had discriminated against black and Hispanic borrowers.

You may not like Trump, but do you like war any better?

• Washington Foreign Policy Elites Not Sorry To See Obama Go (WaPo)

There is one corner of Washington where Donald Trump’s scorched-earth presidential campaign is treated as a mere distraction and where bipartisanship reigns. In the rarefied world of the Washington foreign policy establishment, President Obama’s departure from the White House – and the possible return of a more conventional and hawkish Hillary Clinton — is being met with quiet relief. The Republicans and Democrats who make up the foreign policy elite are laying the groundwork for a more assertive American foreign policy, via a flurry of reports shaped by officials who are likely to play senior roles in a potential Clinton White House. It is not unusual for Washington’s establishment to launch major studies in the final months of an administration to correct the perceived mistakes of a president or influence his successor.

But the bipartisan nature of the recent recommendations, coming at a time when the country has never been more polarized, reflects a remarkable consensus among the foreign policy elite. This consensus is driven by a broad-based backlash against a president who has repeatedly stressed the dangers of overreach and the need for restraint, especially in the Middle East. “There’s a widespread perception that not being active enough or recognizing the limits of American power has costs,” said Philip Gordon, a senior foreign policy adviser to Obama until 2015. “So the normal swing is to be more interventionist.” In other instances, the activity reflects alarm over Trump’s calls for the United States to pull back from its traditional role as a global guarantor of security.

“The American-led international order that has been prevalent since World War II is now under threat,” said Martin Indyk, who oversees a team of top former officials from the administrations of Obama, George W. Bush and Bill Clinton assembled by the Brookings Institution. “The question is how to restore and renovate it.”

Very clear video. But then, it was of course always a stupid thing to claim that US elections cannot be rigged.

• Hacking Democracy (ZH)

“Those who cast the votes decide nothing. Those who count the votes decide everything.” – Joe Stalin.

With the mainstream media lambasting Trump for daring to suggest the election process is rigged – despite hard evidence – this is the hack that proved America’s elections can be stolen using a few lines of computer code. The ‘Hursti Hack’ in this video is an excerpt from the feature length Emmy nominated documentary ‘Hacking Democracy’. The hack of the Diebold voting system in Leon County, Florida, is real. It was verified by computer scientists at UC Berkeley.

Brussels is as crazy as the US Democrats.

• Italy Shields Russia From EU Sanctions Threat (EUO)

Italy has shielded Russia and Syria from a threat of new sanctions, amid warnings by some leaders that Russia was trying to “weaken” the EU. EU leaders said in a joint statement in Brussels on Thursday (20 October) that: “The EU is considering all available options, should the current atrocities [in Syria] continue.” They also urged “the Syrian regime and its allies, notably Russia” to “bring the atrocities to an end”, referring to Russian and Syrian airstrikes on the city of Aleppo in Syria that have caused severe civilian casualties. Germany, France, and the UK had wanted to threaten sanctions more explicitly.

“The EU is considering all options, including further restrictive measures targeting individuals and entities supporting the regime, should the current atrocities continue”, they had suggested saying. Italian prime minister Matteo Renzi led opposition, also shared by some other states, to the threat, diplomats said. He said while leaving the summit that “if we want to speak with Russia then we have to leave the door open”. He also said he did not think “that the difficult situation in Syria could be solved by additional sanctions on Russia”.

Europe has but one purpose: to humiliate Greece. Britain better watch out.

• Draghi Says Athens Should Focus On Reforms, And The Eurozone On Debt (Kath.)

European Central Bank President Mario Draghi on Thursday called on the Greek government to focus its efforts on implementing reforms agreed with the country’s creditors, noting that the ECB will examine the issues of Greece’s debt sustainability and its possible involvement in the Central Bank’s quantitative easing program when the time is right. “Discussions on the sustainability of the Greek debt continued” at an ECB meeting earlier in the day, he said. “We expressed concern, and steps should be taken.” Draghi said the ECB will conduct its own independent assessment of Greece’s debt.

“When the time comes we will examine independently the issue of the debt sustainability,” Draghi said, adding that “until then it is premature to speculate and weave scenarios,” an apparent reference to Greek calls for inclusion in the ECB’s QE program. Draghi appeared to indicate that the ECB would proceed with its assessment of Greece’s debt once there has been action from both sides: work from Athens in implementing reforms and action from Greece’s eurozone partners in lightening its debt burden. The timing of Draghi’s comments was significant. They came a day before Greek Prime Minister Alexis Tsipras is to meet with German Chancellor Angela Merkel on the sidelines of an EU leaders’ summit in Brussels for talks that are expected to touch on Greece’s debt problem and the progress of reforms.

As supermarket prices are as high as in the rest of Europe.

• 126,956 Greek Workers Earn €100 Per Month, 343,760 Between €100 and €400 (KTG)

When it comes to escape the nightmare of unemployment, one may grab all possible and impossible opportunities and even accept jobs with wages that let you come home with a loaf of bread, two tomatoes and a tiny piece of cheese. The data released by the Labor Ministry are shocking: 126,956 employees in the private sector are paid a gross monthly salary of €100. 343,760 employees are paid monthly salaries between €100 and €400 gross. This category of workers have part-time or rotating work contracts. Working time: 2-3 days per week or even a few hours a week. €100 per month gross could be €55-60(?) net – enough to cover transport cost and make a living at €1 per day. PS a friend recently got a job for €300 gross – net should be around €250-230. Working hours are 4 hours per day, four days per week. She has been jobless for 4 years.

Debt Rattle October 14 2016

Oct 142016

October 14, 2016 Posted by Raúl Ilargi Meijer at 9:20 am Finance Tagged with: Brexit, bubble, CETA, corruption, debt, junk, refugees, reserve currency, Trump, yield, yuan Comments Off

Lewis Wickes Hine Newsies in St. Louis, N. Broadway and De Soto. 1910

• Fed Creates Junk Bond And Stock Market Bubble (SA)

• Draghi Sends Corporate Yields So Negative the ECB Can’t Buy Them (BBG)

• There’s No Plateau in a Housing Bubble, Not Even in Canada (WS)

• 30% Junk Rally Gives Traders Heartburn (BBG)

• China’s Tough Choice: Supporting Growth Or Controlling Debt (CNBC)

• China Export Dip Tempts Policy Makers to Keep Weakening Yuan (BBG)

• Shanghai Banks Told To Limit Loans To Property Developers (R.)

• Standard & Poor’s Warns On UK Reserve Currency Status As Brexit Hardens (AEP)

• Hundreds Of Properties Could Be Seized In UK Corruption Crackdown (G.)

• Some of Donald Trump’s Economic Team Diverge From Candidate (WSJ)

• Renzi Gambles All on Referendum Haunted by Weak Italian Economy (BBG)

• Walloon Revolt Against Canada Deal Torpedoes EU Trade Policy (Pol.)

• Germany Proposes North Africa Centers For Rescued Migrants (AFP)

“..this borrowing to fund buybacks and dividends doesn’t last this long and it has never lasted three years..”

• Fed Creates Junk Bond And Stock Market Bubble (SA)

The chart below emphasizes the point that real business investment has declined while commercial and industrial loans are increasing. The leverage in the system is the highest ever as cheap money is not going to the right places. Businesses will only invest in new initiatives if they see sales growth in the future. Low interest rates will not cause a manager to invest in a new initiative. However, managers are still tempted to take the free money, so they pile it into the easiest place: dividends and buybacks.

As you can see, the total payout ratio of dividends and buybacks has exceeded 100% for the past two years. Usually, this borrowing to fund buybacks and dividends doesn’t last this long and it has never lasted three years, so leverage is near its brink.

The chart below shows how levered the balance sheets of corporations are. The leverage on investment-grade balance sheets is at a record high. The three bubbles that you can see in the chart below have all been created by the Federal Reserve’s easy money policies.

Super Clueless Mario surprises himself.

• Draghi Sends Corporate Yields So Negative the ECB Can’t Buy Them (BBG)

The European Central Bank is starting to price itself out of the corporate-bond market as yields plumb such lows that some notes are no longer eligible for its purchase program. ECB President Mario Draghi’s unprecedented buying of corporate debt has sent borrowing costs tumbling to a record and now yields on some securities are so low they fall outside the ECB’s own criteria. Yields on bonds from Paris’s public transport network have already dropped below the threshold of minus 0.4%, while those from Siemens, Europe’s biggest engineering company, France’s train operator SNCF and Sagess, which manages the nation’s strategic oil reserves, are also approaching the cut-off point.

The increasingly negative yields are raising questions about how much more the ECB can do in credit markets to stimulate growth. Yields on €2.6 trillion ($2.9 trillion) of government bonds in Europe have already turned negative after the central bank bought €1.3 trillion of fixed-income assets, including €32 billion of corporate bonds. “This is a sign of how much impact corporate bond buying has had on the credit market,” said Barnaby Martin at Bank of America. “If corporate yields continue to fall, then conceivably it could impact the ECB’s ability to buy bonds. It’s surprising how quickly we’ve reached this situation.”

“When a bubble pops, the first thing that stops is transactions..”

• There’s No Plateau in a Housing Bubble, Not Even in Canada (WS)

Once enough people are priced out of the housing market, demand collapses. This would normally be where housing bubbles deflate in a very painful manner for lenders, homeowners, and everyone getting their cut, including governments and the real estate industry. But there has been a strong influx of mostly Chinese investors that need to get their money, however they obtained it, out of harm’s way at home, and they pile into the market, and they don’t care what a property costs as long as they think they can sell it for more later. But British Columbia threw a monkey wrench in to the calculus this summer when it adopted a 15% real estate transfer tax and other measures aimed squarely at non-resident investors. It hit home, so to speak.

Total sales in Vancouver plunged 32.5% in September from a year ago, with sales of detached homes falling off a cliff – down 47%. Home sales have fallen every month since their all-time crazy peak in February on a seasonally adjusted basis, for a cumulative decline of 44%, according to Marc Pinsonneault, Senior Economist at Economics and Strategy at the National Bank of Canada. But home prices have not yet fallen, he wrote in the note, “because market conditions have just started to loosen from the tightest conditions on records. We see home price deflation starting soon (10% expected over twelve months).” His chart shows the plunge in sales (red line, left scale, in thousands of units) even as active listings have started to rise (blue line, right scale):

In Toronto, the opposite is happening, with sales spiking on a seasonally adjusted basis way past prior record levels, even as new listings have plunged.

For now, “Toronto is now the red hot market,” explains Pinsonneault: “Home sales broke records in each of the last three months. But the historically low supply (in terms of the number of homes listed for sale) is also contributing to market conditions that are the tightest on records.” But the situation can turn on a dime, as Vancouver demonstrated. When a bubble pops, the first thing that stops is transactions. This happens suddenly. Sellers refuse to cut their prices, while buyers refuse to step up to the plate. Things grind to a halt.

Once sellers are forced to relent on price, transactions start rolling again, at lower prices, and each lower price, due to the metrics of comparable sales, pressures down future prices of other transactions. Once Chinese investors figure out that they’re likely to lose a ton of money in Canadian real estate, because their compatriots who’ve piled into the market before them have already lost a ton of money, they’re going to lose their appetite. This is the hot money. It evaporates suddenly and without a trace. As Vancouver shows, bubbles don’t end in a plateau.

Chasing yield doesn’t look like the best way forward.

• 30% Junk Rally Gives Traders Heartburn (BBG)

It’s becoming difficult to see how the lowest-rated U.S. junk bonds can continue to rally. They’ve posted their best performance since 2009, with more than a 30% return so far this year. And now investors from Goldman Sachs Asset Management to Highland Capital are starting to become nervous about this debt, and with good reason: If there’s any sort of economic shock at all, these notes are poised to lose a lot. And some sort of shock is entirely possible in the near future. These notes have benefited from two overwhelming factors this year:

1) New stimulus efforts in Japan and Europe have pushed investors into the most-speculative notes, especially those in the U.S.

2) Oil prices have rallied from the lows reached earlier this year, giving some highly indebted energy companies more time to survive after seeing their corporate lives flash before their eyes last year.There are signs that both dynamics are reaching their limits.Central bankers in Europe and Japan are running out of ways to stimulate their economies after deploying negative-rate policies that are eroding the stability of their financial systems. Instead of trying to add stimulus, policy makers in both regions are being forced to tweak existing bond-buying programs to keep them viable. And oil prices have rallied, but not as much as energy junk bonds, which have gained more than 49% since the end of February. This has propelled gains on the broader high-yield market.

[..] current prices aren’t high enough to sustain the current momentum in these bonds. That’s because a “significant amount” of the lowest-rated unsecured bonds of energy companies are pricing in oil at $70 a barrel over the longer term, Jefferies analyst Michael Carley said. Taking a step back, why should the lowest, most-leveraged junk bonds continue to do well? This debt should do best when an economy is steadily growing, interest rates are low and companies have bright futures. But U.S. companies are facing an earnings recession, the Federal Reserve is poised to raise rates again within the next few months and companies are borrowing at a faster pace than they’re increasing their incomes.

The choice China refuses to make; they do both and run only to move backwards.

• China’s Tough Choice: Supporting Growth Or Controlling Debt (CNBC)

China’s economic transition has caused a problem for the government—how to avert a sharp slowdown while keeping a lid on ballooning debt. In a report Thursday, rating agency Standard and Poor’s highlighted the “tough choice between supporting growth and controlling debt sustainability” as China tries to find new ways to fund public investments. “Although aggregate and provincial GDP growth stabilized in the first two quarters of 2016, we believe the fiscal conditions of Chinese local governments are under more pressure given the weakened economy,” S&P analysts wrote in a report. The rising debt pile of local government financing vehicles (LGFV) raised questions on credit risks, said S&P.

“As long as investments remain a growth impetus, it is very hard to shift away from the old public financing model to weaken the LGFVs’ role in public investment,” said S&P credit analyst, Xin Liu. “The growing pile of LGFV debt will add to the fiscal vulnerability of local governments, which already rely on these financing vehicles to execute public investment mandates,” she added. S&P’s warning on local government debt comes amid concerns about overall debt levels in the country as the world’s second-largest economy begins to slow after years of boisterous growth. Corporate debt is also under focus. In another report released on Tuesday, S&P warned that the “unabated growth” of China’s corporate debt could cost the country’s bank “dearly”.

It said the current growth rate of China’s debt “is not sustainable for long”. S&P said if the growth in debt doesn’t slow, the ratio of problem credit to total credit facing China’s banks could triple to 17% by 2020. The banks may then need to raise fresh capital of up to 11.3 trillion Chinese yuan ($1.7 trillion), which is equivalent to 16% of China’s 2015 nominal GDP. The Bank of International Settlements warned recently excessive credit growth in China will increase the country’s risk of a banking crisis in the next three years.

A plunging reserve currency. What’s not to like?

• China Export Dip Tempts Policy Makers to Keep Weakening Yuan (BBG)

China’s renewed export weakness is coinciding with a clampdown on surging home prices and corporate debt, stoking expectations policy makers will allow further yuan depreciation to buffer the economy. Exports in September dropped the most since February amid anemic global demand (-10%), while imports declined 1.9%, leaving a $42 billion trade surplus. Analysts at Bank of America, RBC and Capital Economics estimate further depreciation for the yuan, already near a six-year low. With S&P Global Ratings and the International Monetary Fund among those warning about the threats from rapid credit expansion, policy makers risk cooling the economy with new property restrictions. But their plan for economic growth of at least 6.5% this year leaves little room for maneuver.

The upshot: a weaker yuan is needed to support an industrial sector that’s returning to profitability as it emerges from four years of deflation. “China is running out of options and letting the yuan go is the lowest-cost option for them,” said Sue Trinh, head of Asia FX strategy at RBC Capital Markets in Hong Kong. “We’ve seen them move in this direction. There’s more work to do.” The yuan is headed for the biggest weekly decline since January as mainland markets returned from holiday to face intensified depreciation pressures from a rising dollar. The yuan has dropped 3.4% against the dollar this year, the biggest decline in Asia. While depreciation’s not helping exporters in dollar terms, it cushions the blow when their shipments are counted in local currency terms, underpinning a recovery in industrial profits.

What’s Chinese for whack-a-mole?

• Shanghai Banks Told To Limit Loans To Property Developers (R.)

Banks in China’s financial hub Shanghai have been asked by authorities to limit loans to property developers for land purchases and to scrutinize would-be borrowers suspected of trying to access mortgages by getting divorced, the Shanghai Daily reported on Friday. The steps were the latest in a string of measures around the country to try to cool a property market seen at risk of overheating. Quoting unidentified commercial bankers, the newspaper said banks were told that housing developers should pay at least 30% down on residential projects instead of relying on bank loans.

It said some developers had put only 10% down on projects and raised the remaining funds through bank and gray-market loans. Banks were also asked to reject mortgage applications of people who had divorced within three months, it quoted an internal filing from a Shanghai-based rural commercial bank as saying. A property price rally has prompted a home buying frenzy in parts of China, in some cases prompting couples to get divorced to circumvent buying restrictions and invest in multiple homes. Police last month detained seven property agents in Shanghai for spreading rumours of plans for a new government regulation that caused a rash of divorces and a rush to buy new homes.

More cause for finger pointing.

• Standard & Poor’s Warns On UK Reserve Currency Status As Brexit Hardens (AEP)

Britain is in danger of misreading the political landscape in Europe and faces the possible loss of its reserve currency status if it fails to secure full access to the European single market, Standard & Poor’s has warned. The powerful US rating agency said the British government is treading into hazardous waters in negotiations with the EU and is risks serious damage to economy’s future growth trajectory, with long-term implications for the debt profile and the country’s credit-worthiness. S&P fears that loss of unfettered access to the single market would have incalculable consequences for business, yet the Government so far appears almost insouciant about this.

“There seems to be this view that ‘we’re a big important economy, the Europeans export a lot to us, so they have got to give us what we want’, but is that really true?” said Ravi Bhatia, the director of sovereign ratings in charge of Britain. “Individually most of these countries don’t export that much to the UK, and were seeing a hardening of attitudes,” he said. Mr Ravi said Britain has limited scope for a spree on infrastructure projects and is walking a fine line on budget policy. “Before Brexit, the trajectory was planned fiscal consolidation, but we’re no longer certain we’re going to see that,” he said. “If they ramp up fiscal spending they’ll get a stimulus and that is good in one way as it will help boost growth, but they have to finance that spending; it will raise the deficit, and the debt stock is already high,” he told the Daily Telegraph.

Standard & Poor’s stripped Britain of its AAA status immediately after the Brexit vote in June, slashing the rating by two notches to AA, although the move was well-flagged in advance. It described the vote as seminal event that would lead to a “less predictable, stable, and effective policy framework in the UK”. The agency will issue its next verdict at the end of this month. Any further downgrade at this delicate juncture would be more serious, amounting to a red card on the Government’s hard-nosed rhetoric and negotiating tactics It is unprecedented for a AAA state to lose three notches in a matter on months.

First they invite them in…

• Hundreds Of Properties Could Be Seized In UK Corruption Crackdown (G.)

Hundreds of British properties suspected of belonging to corrupt politicians, tax evaders and criminals could be seized by enforcement agencies under tough new laws designed to tackle London’s reputation as a haven for dirty money. Huge amounts of corrupt wealth is laundered through the capital’s banks. The National Crime Agency believes up to £100bn of tainted cash could be passing through the UK each year. Much of it ends up in real estate, and in other assets such as luxury cars, art and jewellery. The criminal finances bill, published on Thursday, is designed to close a loophole which has left the authorities powerless to seize property from overseas criminals unless the individuals are first convicted in their country of origin.

It will introduce the concept of “unexplained wealth orders”. The Serious Fraud Office, HM Revenue and Customs and other agencies will be able to apply to the high court for an order forcing the owner of an asset to explain how they obtained the funds to purchase it. The orders will apply to property and other assets worth more than £100,000. If the owner fails to demonstrate that a home or piece of jewellery was acquired using legal sources of income, agencies will be able to seize it. The law targets not just criminals, but politicians and public officials, known as “politically exposed persons”. Depending on how quickly it passes through parliament, the bill could come into force as early as spring 2017.

“There are some hundreds of properties in the UK strongly suspected to have been acquired with the proceeds of corruption,” said the campaign group Transparency International, which has been pressing for the new measures. “This will provide low-hanging fruit for immediate action by law enforcement agencies, if those agencies are properly resourced.”

Whaddayaknow? The WSJ has a Trump story that’s not about genitals. Surrounding yourself with people who don’t agree with you is often not a bad sign.

• Some of Donald Trump’s Economic Team Diverge From Candidate (WSJ)

Advisers concede there is a tug-of-war between the supply-siders and the protectionists, but Mr. Kudlow said he saw similar disagreements in the White House as a budget official for President Ronald Reagan. And Mr. Navarro, whose trade skepticism closely reflects Mr. Trump’s public views, said the campaign is “very much united” on trade. When Mr. Navarro ran for Congress two decades ago, Hillary Clinton, then the first lady, campaigned at one of his San Diego rallies. “Pure serendipity—sweet manna from heaven,” he wrote in a book recounting the campaign. He sought to oust the Republican incumbent by making the race a referendum on then-GOP House Speaker Newt Gingrich. Last month, Mr. Navarro flew with Messrs. Trump and Gingrich to a rally in Fort Myers, Fla. He now says he was “seduced” by the Clintons and “over time, that seduction has turned into betrayal and ultimately disbelief.”

Other top advisers include David Malpass, a Reagan administration official, who as chief economist of Bear Stearns in 2007 dismissed concerns that the housing sector would take the economy into a recession, let alone cause the financial crisis that brought down his bank. When he first met Mr. Trump before a rally in an airplane hangar at Dallas’ Love Field last year, conservative economist Stephen Moore pushed back against Mr. Trump’s invitation to join the campaign. “I can’t work for you because I’m free trade, and I know you’re more of a protectionist,” Mr. Moore recalled saying. Mr. Trump said they could “agree to disagree on that issue,” Mr. Moore said. Advisers say Mr. Trump’s decision to hire people he doesn’t fully agree with shows maturity. “Hillary is more like the red army, with everyone marching in lockstep,” said Mr. Kudlow.

No. 1 concern in Berlin and Brussels.

• Renzi Gambles All on Referendum Haunted by Weak Italian Economy (BBG)

Italians are about to have their say on Prime Minister Matteo Renzi and the economy isn’t doing him any favors. When the country holds a referendum on a key constitutional change Dec. 4, many voters will have more than “Yes” or “No” on their mind. They’ll probably take the opportunity to vent their frustration over the snail’s pace of growth after the latest recession. [..] All but one of Italy’s main polling firms signaled this month that “No” will prevail in the referendum, with surveys saying on average that the reform will be rejected by 52.2% of voters, up from 50.4% in September. To make things potentially worse for Renzi, just three days before the vote, Italians will learn whether the recovery resumed after stalling in the three months through June, when the national statistics office publishes its final reading of third quarter GDP.

“We might go to the polling stations in the wake of a negative GDP figure,” said Alberto Bagnai, who teaches economics at Gabriele d’Annunzio University in Pescara. “That could have a direct impact on the vote.” While recent industrial data have exceeded expectations, confidence among households and executives about the outlook is not very optimistic. Renzi himself acknowledged that economic concerns might influence voters and has tried to reassure them. Last week, the premier and his Finance Minister Pier Carlo Padoan repeatedly defended the government’s above-consensus target of 1% growth next year. The central bank called the goal “very optimistic” – a code phrase signaling difficulties ahead.

A sorrowful bunch.

• Walloon Revolt Against Canada Deal Torpedoes EU Trade Policy (Pol.)

The EU’s once-mighty trade negotiators never dreamed that their powers would be stripped from them so unceremoniously – and possibly for good. The Francophone parliament of the Federation of Wallonia-Brussels – only 10 minutes’ walk from EU headquarters — stands to win a place in history for sinking the EU’s landmark trade deal with Canada and potentially for scuppering the European Commission’s ability to lead the world’s biggest trade bloc for many years. Failure to conclude the Comprehensive Economic and Trade Agreement (CETA) by this month’s deadline would be a devastating blow to the EU, which has spent seven years working on the tariff-slicing agreement with Ottawa.

“It’s crazy. If we allow a regional parliament to block a trade deal that will benefit the whole EU, where does this lead us to?” said Christoph Leitl, president of the Global Chamber Platform, a worldwide alliance of business chambers. “CETA is not just a deal with Canada, it has model character for Europe’s future trade relations.” The Federation of Wallonia-Brussels parliament, which focuses on the cultural and educational concerns of 4.5 million French speakers in Belgium, voted Wednesday evening to reject CETA because of worries about public services and agriculture. [..] Unless the Belgian central government can find an imaginative compromise quickly, the EU will be unable to corral the signatures of all 28 EU countries before an EU-Canada summit on October 27.

German efficiency. Send them where you can’t see them.

• Germany Proposes North Africa Centers For Rescued Migrants (AFP)

Migrants rescued at sea should be taken to centers in north Africa where their claims for asylum in EU countries can be studied, German interior minister Thomas de Maiziere proposed Thursday. De Maiziere made the suggestion as he arrived for a Luxembourg meeting of EU interior ministers who are trying to slow the migrant flow from Libya to Italy after a March deal with Turkey sharply reduced the influx to Greece, the main entry point for Europe last year. “People who are rescued in the Mediterranean should be brought back to safe accommodation facilities in northern Africa,” de Maiziere told reporters. “Their need for protection would be verified and we would put into place a resettlement to Europe with generous quotas, fairly divided between the European countries,” the minister said.

“The others have to go back to their home countries,” he added. EU countries, confronting populist opposition to refugees, have long feuded over quotas for relocating asylum seekers from Greece and Italy as well as for resettling people from refugee camps. De Maiziere did not mention a specific country in north Africa but EU officials have been discussing efforts to curb the migrant flow with Libya, the main transit point for African migrants heading to Europe. However, Libya’s new national unity government last week rejected calls from some EU countries to build refugee camps on its shores, saying the bloc could not “shirk its responsibility” while it struggled to restore peace and stability.

Encore.

• There’s No Plateau in a Housing Bubble, Not Even in Canada (WS)

Canadian house prices jumped 11.7% in September from a year ago, according to The Teranet–National Bank National Composite House Price Index released today. But the index papers beautifully over the dynamics in each metro. In six of the 11 metro markets of the index, prices have been languishing or even declining over the past couple of years, as they’ve hit the wall of reality after often stupendous price gains in the prior decade: Montreal, Calgary, Edmonton, Quebec City, Halifax, and Ottawa-Gatineau. In the two largest markets – Toronto and Vancouver, which combined account for 54% of the index – prices have blown through the roof. Both markets are among the hottest, most over-priced housing bubbles in the world.

UBS recently ranked Vancouver Number 1 globally on that honor roll. But suddenly the dynamics have changed. Vancouver’s housing market is in turmoil, to use a mild word, as sales have crashed, after the implementation of a real-estate transfer tax this summer by British Columbia, aimed squarely at non-resident investors. In Vancouver, those investors are mostly Chinese. And where do these folks now go to inflate prices? Toronto. Still, the national house price index (red line, right scale), after the 11.7% jump over the past 12 months (blue columns, left scale), has doubled since 2005!

The index, similar to the Case-Shiller Home Price index in the US, is based on repeat sales. It looks at properties that sold at least twice over the years to establish “sales pairs.” It then uses a proprietary formula to deduct price changes from these transactions and extrapolate them into an index for each of the 11 markets and nationally. It’s not perfect, but it offers an alternative view to median prices or Canada’s “benchmark” prices. Prices in Toronto have been spiking (red line, right scale), with double-digit year-over-year%age gains (blue columns, left scale) so far this year, including a breath-taking 16% in September.

Vancouver makes Toronto look practically tame. Vancouver went completely crazy, with year-year-over price gains reaching 26% in the summer. Now a new reality went into effect. Market activity has collapsed, as no one knows what anything is worth, with buyers and sellers jockeying for position. And on a monthly basis, the index was essentially flat (+0.2%):

Most Canadians have not seen their incomes rise anywhere near the rate of the house price inflation of the past many years, if their incomes rose at all. Thus, many of them have been priced out of the housing market, or have access to it only via highly risky financing schemes that put both lenders and borrowers at risk, despite historically low interest rates. Once enough people are priced out of the housing market, demand collapses. This would normally be where housing bubbles deflate in a very painful manner for lenders, homeowners, and everyone getting their cut, including governments and the real estate industry. But there has been a strong influx of mostly Chinese investors that need to get their money, however they obtained it, out of harm’s way at home, and they pile into the market, and they don’t care what a property costs as long as they think they can sell it for more later.

Debt Rattle October 10 2016

Oct 102016

October 10, 2016 Posted by Raúl Ilargi Meijer at 9:55 am Finance Tagged with: Brexit, central bankers, clowns, Iceland, IMF, Pentagon, recession, Russia, Trump, yuan 2 Responses »

Lewis Wickes Hine Newsies in St. Louis 1910

• Bank of America Has A Recession Warning That’s Downright ‘Scary’ (CNBC)

• The Truly Scary Clowns: Central Bankers (Forsyth)

• Far From Stepping Back, Top Central Banks Are Set To Double Down (R.)

• The World Bank and the IMF Won’t Admit Their Policies Are The Problem (G.)

• China Must Wean Itself Off Debt Addiction To Avoid Financial Calamity-IMF (Tel.)

• China Fixes Yuan at Six-Year Low Against the U.S. Dollar (WSJ)

• Iceland, Where Bad Bankers Go to Jail, Finds Nine Guilty in Historic Case (CD)

• Pound’s Pounding Helped U.K. Absorb Brexit Shock (WSJ)

• A Mile-High House Of Cards (IM)

• Oil Prices Fall Over Doubts That Non-OPEC Producers Will Cut Output (R.)

• Pentagon Spent Half a Billion On Fake Al-Qaeda Propaganda Videos (Ind.)

• Russia Says US Actions Threaten Its National Security (R.)

“.. if they follow the current trends they’re on, we’re going to hit a recession sometime in the second half of next year.”

• Bank of America Has A Recession Warning That’s Downright ‘Scary’ (CNBC)

There’s a chilling trend in the market, and it could wreak havoc on your portfolio, a top market watcher said. “We are seven years into a full-fledged, all out, central bankers doing everything they can to stimulate demand,” Bank of America-Merrill Lynch’s head of U.S. equity and quantitative strategy Savita Subramanian recently warned on CNBC’s “Fast Money.” “We looked at all of these indicators that have been pretty good at forecasting recessions and we extrapolated that if they follow the current trends they’re on, we’re going to hit a recession sometime in the second half of next year.” The most unsettling thing is that this recession risk isn’t discounted into the market at these levels, according to Subramanian.

The S&P is 1.8% away from its intraday all-time high of 2,193.81, hit on August 15. Subramanian’s year-end 2016 S&P 500 price target is 2000, about seven% lower than where it’s trading today. And, if she’s right, it’s about to get a lot worse next year. “What scares me is the market been so fragile. So, remember what happened in January? We got a whiff of bad news and all of the sudden the market is at 1800,” she said—a move that augured poorly for the near-term. “I think that speaks to the reaction function of the market. There are a lot of itchy trigger fingers. There’s lot of violent trades that can really roil a fairly complacent environment.”

Nice metaphor. Could be used for Trump and Hillary too.

• The Truly Scary Clowns: Central Bankers (Forsyth)

At a Grant’s Interest Rate Observer conference last week, Jeffrey Gundlach, DoubleLine’s CEO, commented on the growing belief that interest rates will “never” rise. When it’s said that something can “never” happen, it’s about to happen, he argued. Zero or negative interest rates are doing more harm than good, he continued, with the long decline in the stock of Deutsche Bank being an example. You can’t help the economy by bankrupting the banks, he contended, which is the effect of shrinking their net interest earnings. For these and other reasons, Gundlach suggested, the lows in bond yields were seen in the post-Brexit plunge in the 10-year Treasury to 1.36%, a hair under the nadir of 1.38% touched in 2012. (Some data providers have slightly different numbers, but they’re as close as “damn it” is to swearing.)

The more important inference is that major trend changes are at hand. As described by Bank of America Merrill Lynch global investment strategists led by Michael Hartnett, we may be witnessing “peak liquidity.” That is, the era of excess liquidity from central banks is ending, which is consistent with shifts in ECB and BOJ policies, the U.K. Prime Minister May’s criticism of QE, and the likelihood of a Fed interest-rate hike in December. In addition, the BofA ML strategists also point to “peak inequality,” which would spur fiscal actions, such as greater spending and income redistribution. Finally, they see “peak globalization,” as populism counters the “disinflationary free movement of capital, trade and labor.”

The sum is “peak returns” from financial assets, the BofA ML team concludes. In that scenario, they recommend “Main Street over Wall Street” for 2017, including small-capitalization stocks and commodities, real assets (including collectibles and real estate) over financial ones, and banks over capital markets. In particular, they suggest a shift from bond proxies, including utilities, telecoms, real estate investment trusts, and low-volatility stocks. These sectors, it should be noted, had tough times last week. Investors who have tilted strongly toward these investments, which have benefited from historically low interest rates, have been laughing all the way to the bank. In the future, they may be spooked by those creepy clowns, otherwise known as less-friendly central bankers.

What happens in one way streets and dead alleys.

• Far From Stepping Back, Top Central Banks Are Set To Double Down (R.)

Central banks’ repeated warnings that there are limits to what they can do to bolster the sputtering world economy could suggest they are about to pull back and pass the baton to governments. But a steady flow of research and a new tone in the debate among policymakers and advisers points in a different direction: rather than retreat, central banks are preparing for the day they may need to do more, even at the risk of antagonizing politicians who argue they already have too much power. The shift can be seen in the acknowledgment by Federal Reserve policymakers that their massive $4 trillion balance sheet will not shrink anytime soon, or that asset buying may become a “recurrent” tool of future monetary policy.

It can be seen in the comments of Bank of England officials who talk of crisis-fighting tools as now semi-permanent fixtures, or in the Bank of Japan developing a new monetary policy framework, in this case targeting long-term market interest rates. Driving those developments is an emerging consensus among policymakers who now acknowledge that the global financial crisis has led to a fundamental shift toward low inflation, tepid growth, lagging productivity and interest rates stuck near zero. “We could be stuck in a new longer-run equilibrium characterized by sluggish growth and recurrent reliance on unconventional monetary policy,” Fed Vice Chair Stanley Fischer said last week.

For years, Federal reserve and other policymakers have discounted such a scenario, arguing that temporary factors were slowing the recovery and plotting a return to conventional pre-crisis policies. Over the past months, though, that optimism has given way to an admission that such a return is increasingly elusive. Interest rates are set to stay low far longer than thought only a year ago and jumbo balance sheets accumulated through crisis-era asset purchases are now cast as a possibly permanent tool. At the annual Jackson Hole Fed conference in August the discussion had shifted from the mechanics and timing of “normalization,” to how and whether to expand the central bank footprint yet again.

They don’t talk to people telling them that.

• The World Bank and the IMF Won’t Admit Their Policies Are The Problem (G.)

The World Bank, IMF and WTO can sense that they are sitting on the edge of a volcano that could blow at any time. They fear, rightly, that a second big crash within a decade would create a backlash leading to protectionism and the rise of dark political forces that would be difficult, if not impossible, to control. That there are ingredients for a fresh crisis became apparent at various stages last week. According to the IMF, global debt has risen to a record level of $152tn – more than double global GDP – at a time when activity is sluggish. Collapsing commodity prices and weak demand from the west has meant that growth in sub-Saharan Africa is running at half the level of population increases. Companies in the emerging world loaded up on debt during the commodity boom and are vulnerable to rising US interest rates and any softening of the world economy. China is the most egregious example of debt being used to boost activity artificially.

The argument that rising debt is fine, because on the other side of ledger is an asset increasing in value, is specious. The only reason the assets are rising in price is because investors are taking on more debt to buy them. At some point, the asset bubble bursts, leaving borrowers with a major problem. This was the lesson of the sub-prime crisis and it is remarkable that memories are so short. The next big one could come from anywhere and it is good that the World Bank and IMF are aware of the risks. Even so, there was an air of unreality about the discussions in Washington last week. The reason was simple: there was not the slightest hint from the IMF or World Bank that the policies they advocated during the heyday of the so-called Washington consensus – austerity, privatisation and financial liberalisation – have contributed to weak and unequal growth, with all the political discontent that this has caused.

Even worse, Lagarde and Kim seemed oblivious to the fact that the Washington consensus approach is alive and well within their organisations. The IMF’s remedy for Greece and Portugal during the eurozone crisis has been straight out of the structural adjustment playbook: reduce public spending, cut salaries and benefits, insist that state-owned enterprises return to the private sector, reduce minimum wages and restrict collective bargaining. Between them, the IMF and the European authorities are turning Greece into a developing country. It would be fascinating to see what sort of response Lagarde would get if she tried talking about inclusive growth to homeless people huddled on the streets of Athens.

The IMF will pressure China now it’s in the basket. New meaning to ‘basket case’.

• China Must Wean Itself Off Debt Addiction To Avoid Financial Calamity-IMF (Tel.)

China is edging towards “financial calamity” and must wean itself off its debt addiction and reform if it is to avoid a crisis, the IMF has warned. Markus Rodlauer, deputy director of the IMF’s Asia-Pacific department, said the world’s second largest economy was approaching a tipping point where its rapidly growing financial sector and surge in shadow credit could undermine the state’s ability to contain the fallout from a crash. “The level of financial and corporate debt and the complexity of the financial system and rapid growth in shadow banking is on an unsustainable path,” he said. “While still manageable in its size given the size of the public assets under public control, the trend is dangerous and if it’s not corrected it will lead to a correction.

“The longer it lasts … the more serious the disturbance and the disruption might be. [The reaction could range] from a mild growth slowdown, to a sharp slowdown in growth to potentially a financial crisis.” Data show credit and financial sector leverage in China has continued to rise much faster than economic growth. The IMF’s latest World Economic Outlook said debt in China was rising at a “dangerous pace”, while its Financial Stability Report showed small Chinese banks were heavily exposed to shadow credit as a share of capital buffers, with exposure reaching nearly 600pc at some banks. Mr Rodlauer, who served as the IMF’s China’s mission chief for five years, said stronger trade ties and financial linkages between China and other countries meant the impact of a hard landing on the global economy could also be huge.

Been in the SDR basket for 10 days, and already there’s this.

• China Fixes Yuan at Six-Year Low Against the US Dollar (WSJ)

The Chinese yuan was guided toward a six-year low against the U.S. dollar on Monday, as the country’s markets returned after a weeklong holiday. In onshore trading, the currency was on track for its biggest one-day loss against the U.S. dollar since the Brexit in June. The yuan entered the basket of currencies backing the IMF’s special drawing rights, an international reserve currency, on Oct. 1. The PBOC set its daily reference rate for the yuan at 6.7008 against the U.S. dollar, a depreciation of 0.3% from its last fixing of 6.6778 on Sept. 30, before the National Day holiday. Monday’s fixing was the weakest level for the currency since September 2010.

Onshore, where the yuan is allowed to trade within 2% of the PBOC’s central reference point, the currency traded 0.5% weaker at 6.7032 in early trade. Offshore, the yuan traded 0.1% weaker at 6.7106. Many markets in Asia, including the largest offshore-yuan trading center in Hong Kong, are closed for a holiday Monday. The past week was characterized by volatility in foreign-exchange markets, including a flash crash in the British pound that saw it lose more than 6% shortly after 7 a.m. Hong Kong time Friday before recovering later in the trading day. The U.S. dollar, which accounts for about a quarter of the value of the basket of currencies the yuan tracks, has strengthened during the period.

The U.S. dollar index, which tracks its strength against a basket of six currencies, is up 1.1% so far this month. The weakness in the yuan fix reflects data released during the past week, including a faster-than-expected drawdown of $18.79 billion in China’s foreign-currency reserves during September, said Alex Wijaya, senior sales trader at CMC Markets. “For the past year, the Chinese government has been intervening in the currency and this has depleted some of its foreign-exchange reserves, and this could be one of the main contributions to the weakness in the yuan,” he said. “The U.S. dollar has been strengthening as well.”

Unlike the rest of the western world, Iceland had no austerity, but it did introduce capital controls and it did go after bankers.

• Iceland, Where Bad Bankers Go to Jail, Finds Nine Guilty in Historic Case (CD)

Iceland, which became a gold standard for corporate accountability in the wake of its 2008-2011 financial crisis, has found nine bankers guilty for market manipulation in one of the biggest cases of its kind in the country’s history. The verdict from Iceland’s Supreme Court, issued Thursday, overturns a June 2015 decision by the Reykjavik District Court, which found seven of the nine defendants guilty and acquitted two. No punishment has been handed down yet, although sentencing is set to come. The defendants worked at the major international firm Kaupthing Bank until it was taken over by the Icelandic government during the crash.

The bank’s former director Hreidar Mar Sigurdsson, who had been sentenced to five and a half years in 2013 in a separate Kaupthing case, had his punishment extended by six months in response to the verdict. The acquittals were overturned for former Kaupthing credit representative Björk Poraninsdottir and former Kaupthing Luxembourg CEO Magnuse Gudmondson, although no penalties have been meted out for them. According to the Iceland Monitor, the decision found that “[b]y fully financing share purchases with no other surety than the shares themselves, the bankers were accused of giving a false and misleading impression of demand for Kaupthing shares by means of deception and pretense.”

“..suffering Brexit’s pain through the currency may be more comfortable than through higher unemployment or other ills..”

• Pound’s Pounding Helped UK Absorb Brexit Shock (WSJ)

When the U.K. voted to leave the European Union in June, the pound took its worst beating in half a century. Many economists saw that as a good thing. Despite the shock of Brexit, more than three months later there are few tangible signs of economic distress in Britain: Employment is steady. The stock market has held up. Government bonds are strong. Houses are still being bought and sold. Consumers are still consuming. Credit, say economists, goes in large part to the decline of the British pound, which has acted as a giant shock absorber against Brexit. It fell 11% against the dollar in two trading days after the vote, and after another sudden slump last week is now down 16%. Seen from abroad, British people are one-sixth poorer and their economy is one-sixth smaller.

In the past week, figures from the IMF suggest, Britain has slid from the world’s fifth-largest economy to sixth, behind its millennium-old rival France. But suffering Brexit’s pain through the currency may be more comfortable than through higher unemployment or other ills—a luxury that wasn’t available to eurozone countries during the currency bloc’s debt crisis. Over the longer term, economic wisdom holds that a weaker currency will boost a nation’s sales abroad, so what the economy loses in the form of lower consumption—because consumers are poorer—will be recovered through higher exports. “It is important that you have a live release valve like this,” said Tim Haywood, an investment director at GAM Holding.

Italy pre-referendum.

• A Mile-High House Of Cards (IM)

According to Webster’s Dictionary, an economic depression is “a period of time in which there is little economic activity and many people do not have jobs.” Italy has had virtually no productive growth since it joined the euro in 1999. Today, the Italian economy (real GDP per person) is smaller than it was at the turn of the century. That’s almost two decades of economic stagnation. The economy today is 10% smaller than it was before its peak prior to the 2008 financial crisis. More than 25% of Italy’s industry has been lost since then. Unemployment is around 12%. Youth unemployment is around 36%. And these are only the official government statistics, which almost certainly understate the true numbers.

The IMF predicts it will take at least until 2025 for the Italian economy to return to its 2008 peak. Since nobody can accurately predict what’s going to happen next year, let alone nine years from now, the IMF is basically saying it has no idea how or when the Italian economy could ever recover. The mass media and establishment economists don’t dare call it a depression. But a depression it is. Italy’s populist Five Star Movement—or M5S, as it’s known by its Italian acronym—is now the country’s most popular political party. M5S blames Italy’s economic malaise squarely on the euro. I’d say a large plurality of Italians agree, and they have a point. They claim that, under the euro, Italian industry and exports have become uncompetitive. M5S believes a return to the lira could be the remedy.

Prior to joining the euro, Italy would regularly post large trade surpluses with Germany. Since joining, it has posted large trade deficits. Because of Italy’s structural economic problems, it should have a significantly weaker currency. But since Italy is wrapped in the euro straightjacket, it gets monetary conditions that are far too tight than appropriate for the country. [..] The Italian economy is made up of many small and medium-sized businesses. Those businesses have taken out loans from Italian banks. But as the economy is in a depression, many of those loans have gone bad or will go bad. This has created a crisis in the Italian banking system. It took years to build up, but now the situation is coming to a head. The Italian banking system is insolvent, and now everyone knows it. Shares of Italian banks have plummeted more than 50% so far this year.

No need to doubt: rest assured it’s not going to happen.

• Oil Prices Fall Over Doubts That Non-OPEC Producers Will Cut Output (R.)

Oil prices fell on Monday over doubts that an OPEC-led plan to cut output would rein in a global oversupply that has dogged markets for over two years. Brent crude futures were trading at $51.53 per barrel at 0511 GMT, down 40 cents or 0.77%, from their last settlement. WTI futures were down 44 cents or 0.88%, at $49.37 a barrel. OPEC plans to agree on an output cut by the time it meets in late November. The targeted range is to cut production to a range of 32.50 million barrels per day (bpd) to 33.0 million bpd. OPEC’s current output stands at a record 33.6 million bpd. To achieve such an agreement among its members, some of which like Saudi Arabia and Iran are political rivals, OPEC officials are embarking on a flurry of meetings in the next six weeks, starting in Istanbul this week.

However, analysts cautioned about too high expectations about the Istanbul talks this week. “A meeting between OPEC and non-OPEC producers (namely Russia) will add to oil headlines this week. Don’t expect a firm agreement from Russia, but headlines about cooperation are likely,” Morgan Stanley said on Monday. “It’s also worth noting that Iraq and Iran oil ministers will not be in attendance,” the U.S. bank added. Even if a deal is reached, analysts are unconvinced it would result in much higher prices, as doubts run high over the feasibility of a cut among rivaling members, a Reuters poll showed on Friday. Pouring cold water on expectations, OPEC’s second biggest producer Iraq said over the weekend that it wants to raise output further in 2017.

“The CDs were encoded to open the videos on RealPlayer software that connects to the Internet when it runs. It would issue an IP address that could then be tracked by US intelligence. ”

• Pentagon Spent Half a Billion On Fake Al-Qaeda Propaganda Videos (Ind.)

A former contractor for a UK-based public relations firm says that the Pentagon paid more than half a billion dollars for the production and dissemination of fake Al-Qaeda videos that portrayed the insurgent group in a negative light. The Bureau of Investigative Journalism reported that the PR firm, Bell Pottinger, worked alongside top US military officials at Camp Victory in Baghdad at the height of the Iraq War. The agency was tasked with crafting TV segments in the style of unbiased Arabic news reports, videos of Al-Qaeda bombings that appeared to be filmed by insurgents, and anti-insurgent commercials – and those who watched the videos could be tracked by US forces.

The report of Bell Pottinger’s involvement in the video hearkens back to more than 10 years ago, when the Washington-based PR firm Lincoln Group was revealed to have produced print news stories and placed them in Iraqi newspapers. According to the Los Angeles Times, who obtained the 2005 documents, the stories were intended to tout the US-led efforts in Iraq and denounce insurgent groups. Bell Pottinger was first tasked by the interim Iraqi government in 2004 to promote democratic elections. They received $540m between May 2007 and December 2011, but could have earned as much as $120m from the US in 2006. Lord Tim Bell, a former Bell Pottinger chairman, confirmed the existence of the contract with the Sunday Times.

The Pentagon also confirmed that the agency was contracted under the Information Operations Task Force, but insisted that all material distributed was “truthful”. However, former video editor Martin Wells, who worked on the IOTF contract with Bell Pottinger, said they were given very specific instructions on how to produce the fake Al-Qaeda propaganda films. “We need to make this style of video and we’ve got to use Al-Qaeda’s footage,” Mr Wells told the Bureau, recalling the instructions he received. “We need it to be 10 minutes long, and it needs to be in this file format, and we need to encode it in this manner.” According to Mr Wells’ account, US Marines would then take CDs containing the videos while on patrol, then plant them at sites during raids. “If they’re raiding a house and they’re going to make a mess of it looking for stuff anyway, they’d just drop an odd CD there,” he said.

Russis will not back down.

• Russia Says US Actions Threaten Its National Security (R.)

Russian Foreign Minister Sergei Lavrov said on Sunday he had detected increasing U.S. hostility towards Moscow and complained about what he said was a series of aggressive U.S. steps that threatened Russia’s national security. In an interview with Russian state TV likely to worsen already poor relations with Washington, Lavrov made it clear he blamed the Obama administration for what he described as a sharp deterioration in U.S.-Russia ties. “We have witnessed a fundamental change of circumstances when it comes to the aggressive Russophobia that now lies at the heart of U.S. policy towards Russia,” Lavrov told Russian state TV’s First Channel. “It’s not just a rhetorical Russophobia, but aggressive steps that really hurt our national interests and pose a threat to our security.”

With relations between Moscow and Washington strained over issues from Syria to Ukraine, Lavrov reeled off a long list of Russian grievances against the United States which he said helped contribute to an atmosphere of mistrust that was in some ways more dangerous and unpredictable than the Cold War. He complained that NATO had been steadily moving military infrastructure closer to Russia’s borders and lashed out at Western sanctions imposed over Moscow’s role in the Ukraine crisis. He also said he had heard that some policy makers in Washington were suggesting that President Barack Obama sanction the carpet bombing of the Syrian government’s military air fields to ground its air force. “This is a very dangerous game given that Russia, being in Syria at the invitation of the legitimate government of this country and having two bases there, has got air defense systems there to protect its assets,” said Lavrov.

Debt Rattle October 3 2016

Oct 032016

October 3, 2016 Posted by Raúl Ilargi Meijer at 9:37 am Finance Tagged with: Abenomics, Deutsche, dollar, Fukushima, Greece, Kuroda, pound, refugees, yuan 7 Responses »

NPC Congressman John C. Schafer of Wisconsin 1924

• Is the U.S. Dollar Set to Soar? (CH Smith)

• Pound Nears Three-Decade Low as May Sets Date for Brexit Trigger (BBG)

• China Seeking To Succeed Where Japan Failed In Reserve Currency Push (BBG)

• Deutsche Bank Races Against Time To Reach US Settlement (R.)

• German Economy Minister Accuses Deutsche Bank Of Hypocrisy (Pol.)

• It’s Not Just Deutsche. European Banking is Utterly Broken (Tel.)

• Kuroda Blamed For Abenomics Failure, Ruins Chance Of Second Term (BBG)

• BOJ Deploys US World War II Tactics That Failed to Spur Prices (BBG)

• Canada’s Big Bet on Stimulus Draws Global Attention (WSJ)

• Jail Wells Fargo CEO and Chairman John Stumpf! (Nomi Prins)

• The Government Is Turning the Entire United States into a Debtors Prison (TAM)

• Fukushima Has Contaminated The Entire Pacific Ocean, Going To Get Worse (TA)

• Hungary’s Refugee Referendum Not Valid After Voters Stay Away (G.)

• Vulnerable Refugees To Be Moved From ‘Squalid’ Camps On Greek Islands (G.)

• Germany Wants Migrants Sent Back To Greece, Turkey (AFP)

As the Automatic Earth has said for many years, he USD won’t be the first to go. It’s about dollar-denominated debt.

• Is the U.S. Dollar Set to Soar? (CH Smith)

Which blocs/nations are most likely to face banking/liquidity crises in the next year? Hating the U.S. dollar offers the same rewards as hating a dominant sports team: it feels righteous to root for the underdogs, but it’s generally unwise to let that enthusiasm become the basis of one’s bets. Personally, I favor the emergence of non-state reserve currencies, for example, blockchain crypto-currencies or precious-metal-backed private currencies – currencies which can’t be devalued by self-serving central banks or the private elites that control them. But if we set aside our personal preferences and look at fundamentals and charts, odds seem to favor the U.S. dollar making a major move higher in the next few months. Let’s start with a national index of finance-power which combines GDP, military spending, banking, foreign direct investment (FDI) and foreign exchange:

The key take-away is the preponderance of the U.S. and the Anglo-American alliance, a.k.a. the special relationship of Great Britain and the U.S. The U.S. exceeds Germany, China, Japan and France combined, and the U.S.-Great Britain alliance is roughly equal to the next 10 nations: the four listed above plus The Netherlands, Switzerland, Italy, Spain, Canada and the Russian Federation. We don’t have to like it, but as investors it’s highly risky to act like it isn’t reality.

If the whining about Beautiful Brexit would finally stop in the UK, maybe they could do something constructive.

• Pound Nears Three-Decade Low as May Sets Date for Brexit Trigger (BBG)

The pound approached the three-decade low set in the days following the Brexit referendum after U.K. Prime Minister Theresa May said she’ll begin the process of withdrawal from the European Union in the first quarter of 2017. Sterling dropped to the weakest level since July 6, the day it reached its 31-year low of $1.2798, and slipped against all of its 31 major peers. Hedge-fund data showed speculators raised bets that the currency would fall. May told delegates at her Conservative Party’s annual conference that she’ll curb immigration, stoking speculation the nation is headed toward a so-called hard Brexit. Stocks of U.K. exporters rose, boosted by the weaker currency. “We’re back to the Brexit risks,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “Sterling has taken a bit of a knock.”

Let’s see large-scale global issuance of debt in yuan. Then we talk.

• China Seeking To Succeed Where Japan Failed In Reserve Currency Push (BBG)

Like the yuan, the yen’s march toward liberalization was gradual and marked with ambivalence. Under the Bretton Woods system after World War II, the Japanese currency was fixed at 360 a dollar, before a trading band was introduced in 1959 to make it slightly more flexible. For three decades, all capital flows except those explicitly permitted were banned, making it easier for the government to achieve policy goals. It wasn’t until 1998 that approval or notification requirements for financial transactions and outward direct investments were abolished. The push to internationalize the yen initially came from the U.S., which wanted greater global use to fuel appreciation and reduce Japan’s trade surplus with America. China’s situation now isn’t dissimilar.

Having thrived on an economic model of closed borders and accumulation of reserves for decades, its capital account is still closed, individuals’ foreign-exchange conversions are capped and inter-country money flows occur mainly through specific programs. Policy makers have tightened controls on outflows in the past year after the yuan’s August 2015 devaluation exacerbated depreciation pressures. The currency was little changed Friday at 6.68 per dollar. Lowering the hurdles to create a true freely traded currency might risk a flight of capital during times of weakness, a concept China doesn’t always seem comfortable with. “Everyone wants this thing called ‘exorbitant privilege,’ but if you try to give it to them, they get furious and they tell you to stop,” said Michael Pettis, a finance professor at Peking University.

“Countries like China that are running huge surpluses because of insufficient domestic demand – basically they are creating the role of the dollar as the dominant reserve currency.” The term “exorbitant privilege,” coined by former French finance minister Valery Giscard D’Estaing in 1965, referred to the benefits the U.S. received for the dollar’s status. Daniel McDowell, a Syracuse University political science assistant professor who studies international finance, made the point that the appeal of a nation’s sovereign debt market plays a key role in a currency’s internationalization. The yen never became a major reserve currency because its government bonds weren’t as attractive or as plentiful as the U.S., he said.

Everyone’s just trying to save face by now. Merkel, Obama, DOJ.

• Deutsche Bank Races Against Time To Reach US Settlement (R.)

Deutsche Bank is throwing its energies into reaching a settlement before next month’s presidential election with U.S. authorities demanding a fine of up to $14 billion for mis-selling mortgage-backed securities. The threat of such a large fine has pushed Deutsche shares to record lows, and a cut-price settlement is urgently needed to reverse the trend and help to restore confidence in Germany’s largest lender. Its shares won’t trade in Germany on Monday because of a public holiday, but they will resume trading on the U.S. market later on Monday. A media report late on Friday that Deutsche and the U.S. Department of Justice were close to agreeing on a settlement of $5.4 billion lifted the stock 6% higher, but that report has not been confirmed.

The Wall Street Journal reported on Sunday that the bank’s talks with the DOJ were continuing. Details are in flux, with no deal yet presented to senior decision makers for approval on either side, the paper said, citing people familiar with the matter. “Clearly, so long as a fine of this order of magnitude ($14 billion) is an even remote possibility, markets worry,” UniCredit Chief Economist Erik F. Nielsen wrote in a note on Sunday. Ratings agency Moody’s said it would be positive for bondholders if the lender could settle for around $3.1 billion, while a fine as high as $5.7 billion would dent 2016 profitability but not significantly impair the bank’s capital position.

[..] The Bild am Sonntag newspaper wrote on Sunday that Deutsche’s chairman had informed Berlin just before it disclosed the potential $14 billion fine but had not asked for help. The same newspaper quoted the president of the Bavarian Finance Centre, Wolfgang Gerke, as saying that the German government should step in and buy a 20% stake in the bank before its value fell any further. The group represents financial services companies in the southern German state. “Fundamentally, I’m against state interventions,” he told the newspaper, but added that in this case a government stake would be “a signal that could turn the whole market”.

Making Merkel’s day, no doubt. It wasn’t nearly hard enough for her yet.

• German Economy Minister Accuses Deutsche Bank Of Hypocrisy (Pol.)

Germany’s economy minister has highlighted the irony of Deutsche Bank blaming speculators for its falling share price when the bank itself has built its business on speculation. “I did not know if I should laugh or get angry that the bank that made speculation a business model is now saying it is a victim of speculators,” Sigmar Gabriel told journalists on a plane to Tehran on Sunday, Der Spiegel reported. The threat of a $14 billion fine by U.S. authorities over the sales of mortgage-backed securities before the financial crisis sent Deutsche Bank’s shares to new lows this month. Gabriel was responding to a letter sent by Deutsche Bank CEO John Cryan to staff Friday blaming “new rumors” for causing the plunge in share prices and saying “forces” wanted to weaken trust in Germany’s largest bank.

“US banks won’t be nearly as badly hit by the measure as their European counterparts, which is no doubt why their regulators are gunning so hard for it.”

• It’s Not Just Deutsche. European Banking is Utterly Broken (Tel.)

[..] as is evident from the events of the last week, the banking crisis itself is far from over. Nine years after the initial eruption, it still rumbles on, with the epicentre now moved from the US to Europe. Only it’s not the same crisis; in large measure, it is completely different. Today’s mayhem is not so much the result of reckless bankers and asleep at the wheel regulators, but rather of the public policy response to the last crisis itself – that is to say, regulatory over-reach and central bank money printing. All eyes are naturally focused on the specific problems of Deutsche Bank, but Deutsche is in truth no more than the canary in the coal mine. As Tidjane Thiam, chief executive of Credit Suisse, observed last week, as an entire sector, European banks are still “not really investable”.

Much the same disease as afflicts Continental banks also applies to British counterparts, including RBS, Barclays and even Lloyds. All are fast being enveloped by a perfect storm of negatives, and this time around, it is substantially the policymakers and law enforcers who are to blame. There are essentially four factors at work here. First, it’s virtually impossible to make money out of banking in a zero interest rate environment, frustrating attempts to rebuild capital buffers after the bad debt write-downs of recent years. In circumstances where central banks have bought right along the yield curve, flattening it down to virtually nothing, the margin from maturity transformation all but disappears. Much the same thing has happened to the once lucrative returns of investment banking.

Even Goldman Sachs has been forced to admit that it is struggling to cover its cost of capital. Second is ever tougher international capital requirements, the latest instalment of which is dubbed Basel IV. The renewed crackdown is understandable, given what occurred nine years ago, but also ill-conceived and discriminatory, unfairly penalising European banks against their American counterparts. The technical details need not concern us too much here, suffice it to say that in order to stop banks gaming the system, regulators are attempting to impose a so-called “output floor”, tightly limiting the scope for easier capital requirements on risk weighted assets. US banks won’t be nearly as badly hit by the measure as their European counterparts, which is no doubt why their regulators are gunning so hard for it.

That is so convenient for Abe…

• Kuroda Blamed For Abenomics Failure, Ruins Chance Of Second Term (BBG)

Governor Haruhiko Kuroda has ruined his chances of getting a second full term, according to Nobuyuki Nakahara, who has advised the prime minister on the economy and was an intellectual father of the Bank of Japan’s first run at quantitative easing in 2001. The central bank’s switch to yield-curve targeting compounds its earlier error of adopting negative interest rates and is a disappointing move away from monetary-base expansion, Nakahara, 81, said in an interview on Sept. 30. In a stinging attack on the BOJ’s recent actions, he said the decision to conduct a comprehensive review of monetary policy had invited defeat on reflationist efforts and would raise questions about Abenomics as a whole.

Prime Minister Shinzo Abe’s economic program consists of three so-called arrows: the first being aggressive monetary policy, the second fiscal spending and the third structural reform. The central bank’s program, which began when Abe tapped Kuroda for the BOJ role in early 2013, has been the most prominent and highly debated aspect of Abenomics. “They are trying to clean up the mess of negative rates. It’s impossible to do a stupid thing like keeping the yield curve under government control,” said Nakahara. “They changed the regime to rates from quantity, meaning those who support quantitative easing were defeated. Reflationists on the BOJ policy board lost. An exit from deflation is going to be far away.”

After being greeted with fanfare when he took the helm, Kuroda, 71, now faces a reversal of fortunes on multiple fronts. Markets have moved against him and critics are growing more vocal. The extended honeymoon he enjoyed with a rising stock market and falling yen are long gone and his 2% inflation goal is nowhere in sight. Kuroda has less than 19 months to go in his term. While no BOJ governor has been tapped for a second five-year term since the 1960s, Kuroda’s central role in Abenomics has led to speculation that he may be different.

If you don’t know what deflation is, you can’t fight it.

• BOJ Deploys US World War II Tactics That Failed to Spur Prices (BBG)

In deciding to target bond yields, Japan is deploying a monetary strategy to combat deflation used by its former enemy in World War II. The trouble is that America’s experience back then suggests that the tactics probably won’t work on their own. Economists who have studied that period say that it was increased government spending, along with heightened inflation expectations, that eventually led to a stepped-up pace of U.S. price increases more than a half century ago. Once inflation was humming along, the Federal Reserve’s strategy of pegging long-term interest rates did nothing to put a lid on it, which is why the central bank pushed for a 1951 agreement with the Treasury to abandon the long-term yield fix.

If inflation expectations are contained, simply targeting yields won’t necessarily spur price pressures, according to Barry Eichengreen, a professor at the University of California at Berkeley who co-wrote a paper on U.S. monetary and financial policy from 1945 to 1951. But if people already expect faster inflation, then the tool can help promote it. That’s not a helpful conclusion for Bank of Japan Governor Haruhiko Kuroda and his colleagues, who last month switched the focus of their monetary stimulus to controlling yields across a range of maturities, after simply expanding the monetary base through debt purchases. It set the target for the yield on the 10-year Japanese government bond at around 0%.

Another piece of their new framework: trying to shock inflation expectations higher by pledging to keep stimulus in place until prices are rising even faster than their 2% target. Their struggle is to overturn subdued household and corporate expectations that have been set hard by decades of deflation. For the Fed in World War II and its aftermath, capping long-term yields at 2.5% had nothing to do with inflation per se. Its goal was to limit the government’s borrowing costs and so support the war effort. Inflation was held down by price controls during the war, then spiked higher after hostilities ended, hitting a high of 19.7% in 1947. The surge proved short-lived, as an economic recession that began late the following year produced a return of the deflation that had plagued the country during the Great Depression.

And if successful, they’re all going to do it? Oops, too late.

• Canada’s Big Bet on Stimulus Draws Global Attention (WSJ)

In the global struggle to boost growth, a Canadian experiment in fiscal spending is providing a test case for some of the world’s biggest economies. PM Justin Trudeau’s Liberal government unveiled a plan last spring to spend heavily on tax benefits and infrastructure, with $120 billion CAD (US$91.39 billion) going into infrastructure over the next decade, including about one-tenth of that on short-term projects. It’s a bold bet to inject life into an economy struggling with a rout in commodity prices, especially crude oil, which was once Canada’s top export. It also highlights the limits of monetary stimulus, since the country’s central bank cut rates twice in 2015, to 0.5%, and has acknowledged—as its counterparts around the world have—that monetary policy becomes a less powerful tool when interest rates are already low.

Mr. Trudeau’s big infrastructure spend will be largely financed by a bigger deficit, which is projected to reach C$29.4 billion this fiscal year, or about 1.5% of GDP. That’s a sharp turn from the balanced-budget promise of his Conservative predecessor, who hewed the austerity path Mr. Trudeau is now shunning. Canada’s efforts stand in contrast to many of the world’s economies, whose finance ministers and central bankers meet this week in Washington for semiannual meetings of the International Monetary Fund and World Bank. Some—like Australia, also hit by the commodity rout—are trying to use coordinated fiscal and monetary policy. But larger advanced economies are holding firm to tight budgets, making Canada’s embrace of debt-fueled stimulus unusual.

“The eyes of the world—the economists—will be watching to see how Canada performs,” said Martin Eichenbaum, a Northwestern University economist who is also an international fellow at the C.D. Howe Institute, a Canadian think tank. “We’re all watching to see: Will they get it right?”

Yeah. Not going to happen….

• Jail Wells Fargo CEO and Chairman John Stumpf! (Nomi Prins)

Consider this. You’re a mob boss. You run a $1.8 trillion network of businesses across state lines and continents. Many of these are legit, but a select subset of them – not so much. Every so often the illegal components flare up; some Washington commission launches an investigation, someone blows a whistle, people lose their homes, a pack of investors sheds a ton of money and lawsuits fly. You get reprimanded and have to pay lawyers and accountants overtime to deal with the paperwork. You settle on fines with the government — $10 billion worth. Then you keep going with no one the wiser, no wings clipped, no hard time. After all of that — you say you’re sorry, forfeit some money you didn’t even make yet, and (maybe) resign with boatloads more of it.

This is what we’re dealing with regarding Wells Fargo CEO and Chairman John Stumpf. He could be a really nice guy and wears some lovely tailored attire. (Hell, even Al Capone cared about proper milk expiration date labels.) But he’s also a crook, plain and simple. He’s cheated shareholders and taxpayers and customers, and used a stockpile of FDIC-backed deposits as fodder for illicit activities that have been repeatedly investigated and fined. And he made hundreds of millions of dollars doing it. This is not conjecture, nor sour grapes from the nonmillionaire swath of the population. It’s based on documented facts. But by no means is Wells the only guilty bank on the street, or Stumpf the only “apologetic” CEO. Apologies are cheap, and so is money when it’s a small piece of a much larger pie.

Somewhere, Jamie Dimon and Lloyd Blankfein are sighing in relief that this time it was Stumpf and not one of them, the other two of the three (of the Big Six bank) CEOs left standing since the crisis. These are just some highlights of those nearly $10 billion in total fines Wells agreed to, rather than take matters to court, since 2009. The sheer sum of those fines reveal a recidivist attitude toward ethics, regulations and the law. The associated transgressions were all committed under Stumpf’s leadership. There’s no way a regular citizen committing a fraction of a fraction of anything like these wouldn’t be in jail. Complexity is no excuse for criminal behavior. Nor is calling these practices “abuses” rather than felony fraud for misleading, at the very least, investors and shareholders in a publicly traded mega-company that violates securities laws.

… but if not the Wells Fargo CEO, at least some people will go to jail…

• The Government Is Turning the Entire United States into a Debtors Prison (TAM)

Since the United States was founded, citizenship has represented a safe haven from oppressive regimes around the world. By preserving the principles of small government and free markets, those who were willing to work hard found success, and America became a magnet for innovation. But as the U.S. continues to erode personal and economic freedom, more people than ever before are handing over their U.S. passports to seek better opportunities abroad. The staggering amount of debt held by the American empire ensures the public will be working it off for generations to come. The government has already begun its campaign to make it more difficult to leave the country, and it has also begun to crack down on the finances of the eight million Americans living abroad.

Regardless of whether you’re a millionaire with multiple foreign bank accounts or a recent college graduate with a boatload of debt, the status of being a United States citizen brings with it a burden that will only grow heavier over time. Since 2008, the number of individuals giving up their citizenship has increased by almost 560%, setting new records each of the past three years. Some of these expats are motivated by the extra tax load paid when working abroad, while others are trying to avoid student loan debt. Others have just had enough of the encroaching police state. Every taxpayer left in the country now owes more than $149,000 of the national debt, so it’s no surprise the tide is beginning to turn. By hook or by crook, in the coming years, citizens will be fleeced of that money through higher taxes, savings that are inflated away, and an overall drop in their standard of living.

Many can see the writing on the wall and have become determined to protect themselves from the years of economic repression coming down the pipe. Draconian steps have already been taken to slow the rate of expatriation. For one, the IRS has broadened its reach into foreign bank accounts through the Foreign Account Tax Compliance Act. Through agreements with over 100 nations, the law is able to require all financial institutions abroad to report the account details of any American customers they have. With access to this new information, the IRS can revoke the passports of potential tax evaders and hinder their ability to travel using yet another additional power the agency was granted last year.

The gift that keeps on contaminating.

• Fukushima Has Contaminated The Entire Pacific Ocean, Going To Get Worse (TA)

What was the most dangerous nuclear disaster in world history? Most people would say the Chernobyl nuclear disaster in Ukraine, but they’d be wrong. In 2011, an earthquake, believed to be an aftershock of the 2010 earthquake in Chile, created a tsunami that caused a meltdown at the TEPCO nuclear power plant in Fukushima, Japan. Three nuclear reactors melted down and what happened next was the largest release of radiation into the water in the history of the world. Over the next three months, radioactive chemicals, some in even greater quantities than Chernobyl, leaked into the Pacific Ocean. However, the numbers may actually be much higher as Japanese official estimates have been proven by several scientists to be flawed in recent years.

If that weren’t bad enough, Fukushima continues to leak an astounding 300 tons of radioactive waste into the Pacific Ocean every day. It will continue do so indefinitely as the source of the leak cannot be sealed as it is inaccessible to both humans and robots due to extremely high temperatures. It should come as no surprise, then, that Fukushima has contaminated the entire Pacific Ocean in just five years. This could easily be the worst environmental disaster in human history and it is almost never talked about by politicians, establishment scientists, or the news. It is interesting to note that TEPCO is a subsidiary partner with General Electric (also known as GE), one of the largest companies in the world, which has considerable control over numerous news corporations and politicians alike.

Could this possibly explain the lack of news coverage Fukushima has received in the last five years? There is also evidence that GE knew about the poor condition of the Fukushima reactors for decades and did nothing. This led 1,400 Japanese citizens to sue GE for their role in the Fukushima nuclear disaster. Even if we can’t see the radiation itself, some parts of North America’s western coast have been feeling the effects for years. Not long after Fukushima, fish in Canada began bleeding from their gills, mouths, and eyeballs. This “disease” has been ignored by the government and has decimated native fish populations, including the North Pacific herring. Elsewhere in Western Canada, independent scientists have measured a 300% increase in the level of radiation.

It won’t stop Orban.

• Hungary’s Refugee Referendum Not Valid After Voters Stay Away (G.)

The Hungarian prime minister, Viktor Orbán, has failed to convince a majority of his population to vote in a referendum on closing the door to refugees, rendering the result invalid and undermining his campaign for a cultural counter-revolution within the European Union. More than 98% of participants in Sunday’s referendum sided with Orbán by voting against the admission of refugees to Hungary, allowing him to claim an “outstanding” victory. But more than half of the electorate stayed at home, rendering the process constitutionally null and void.

Orbán himself put a positive spin on the low turnout. He argued that while “a valid [referendum] is always better than an invalid [referendum]” the extremely high proportion of no-voters still gave him a mandate to go to Brussels next week “to ensure that we should not be forced to accept in Hungary people we don’t want to live with”. He argued that the poll would encourage a wave of similar votes across the EU. “We are proud that we are the first,” he said.

NOTE: Less than 2 weeks ago, the EU refused Greece permission to move the refugees to the mainland, because they might try to travel north.

“Athens will be overwhelmed, [as will] the mainland, people will be forced to live in fields, there will be scenes we’ll never have imagined.”

• Vulnerable Refugees To Be Moved From ‘Squalid’ Camps On Greek Islands (G.)

Greece is poised to transfer thousands of refugees from overcrowded camps on its Aegean islands to the mainland amid escalating tensions in the facilities and protests from irate locals. The government said unaccompanied minors, the elderly and infirm would be among the first to be moved as concerns mounted over the future of a landmark EU-Turkey deal to stem migrant flows. “The situation on the islands is difficult and needs to be relieved,” said deputy minister for European affairs Nikos Xydakis. “Accommodation on the mainland will be more suitable. We will start with transfers of those who are most vulnerable, always in the sphere of implementing and protecting the EU-Turkey agreement.”

The operation, expected to be put into motion this week, came as Ankara warned the pact would not hold if Brussels failed to honour its pledge to allow Turks visa-free travel to the bloc. In a fiery speech before the newly reconvened parliament at the weekend, Turkish president Erdogan gave his clearest signal yet that the six-month-old agreement was in danger of collapse because of slow progress over visa liberalisation. [..] Refugee flows, although rising again, have dropped by 90% since the deal was signed. [..] Western diplomats in the Greek capital raised the spectre of chaos if the agreement collapsed. “If it does, there will be an influx of a million or more and this country is totally unprepared,” one European ambassador confided. “Athens will be overwhelmed, [as will] the mainland, people will be forced to live in fields, there will be scenes we’ll never have imagined.”

[..] Acknowledging that camp conditions were far from ideal, Xydakis blamed the backlog in asylum applications on the EU’s failure to dispatch promised staff and push ahead with an agreed relocation scheme to other parts of the continent. “We were promised 400 experts in asylum procedures but so far only have around 29 on the islands. We are continuing to recruit and look for more staff but it is not easy,” he said. “The deal is not only in the hands of Turkey but Europe … some EU states are not respecting but neglecting their responsibilities.”

To reiterate what I said yesterday on this topic:

“It was Germany that last year declared Dublin null and void. They will say that was only temporaray, but regulations like this are not light switches that selected parties can flick on and off when it suits them.

What happens now is quite simply that both the refugees and Greece are the victims of Angela Merkel’s falling poll numbers. And that is insane. It’s cattle trade. Athens should take Berlin to court over this.

Greece is already little more than a greatly impoverished holding pen for the unwanted, and it threatens to fall much deeper into the trap. That’s why the Automatic Earth effort to support the poorest people is not just still needed, but more now than ever. We will soon start a new campaign to that end. In the meantime, please do continue to donate through our Paypal widget in amounts ending in $.99 or $.37.”

• Germany Wants Migrants Sent Back To Greece, Turkey (AFP)

Germany called Sunday for asylum seekers who entered the European Union via Greece to be forced to return there, while also urging Athens to send more migrants back to Turkey. In an interview with a Greek daily, German interior minister Thomas de Maiziere said he wants to reinstate EU rules which oblige asylum seekers to be sent back to Greece as the first EU country they reached. “I would like the Dublin convention to be applied again… we will take up discussions on this in a meeting with (EU) interior ministers” later in October, he told the Greek daily Kathimerini. The Dublin accord gives responsibility for asylum seekers’ application to the first country they reach – which put Greece on the frontline of more than a million migrants who arrived in the EU last year.

The accord also says asylum seekers should be sent back to the first country they arrived in if they subsequently reach another EU state before their case is examined. A huge proportion of the migrants ended up in Germany. But this clause was suspended for Greece in 2011 after the country lost an EU legal complaint which condemned the mistreatment of migrants seeking international protection. “Since then, the EU has provided substantial support, not only financially,” to Greece to improve its asylum seeker procedures, the German minister said. In an interview on German television Sunday evening, De Maiziere also criticised Athens for failing to fully implement an EU agreement with Turkey to return migrants there.

The EU reached a deal with Turkey in March to stop the influx to the Greek islands in return for financial aid and eased visa conditions for its citizens. But the deal has looked shaky in the wake of a coup attempt in Turkey in July. “Greece must carry out more expulsions,” he told the ARD television station.

Debt Rattle October 1 2016

Oct 012016

October 1, 2016 Posted by Raúl Ilargi Meijer at 9:26 am Finance Tagged with: bees, Brexit, default, Deutsche, elephants, homeless, IPO, rumor, SDR, Snowden, Trump, yuan Comments Off

Lewis Wickes Hine Drift Mouth, Sand Lick Mine, near Grafton, West Virginia 1908

• Why You Should Be Skeptical Of That $5.4 Billion Deutsche Settlement (CNBC)

• A Deutsche Bank Settlement Rumor Overshadows US Equities (R.)

• Deutsche Bank Takes a Lashing From the German Public (WSJ)

• Trump Will Win, Unless the S&P Rallies in October (BBG)

• Global Trade Crashes Back To “Very Old Normal” (ZH)

• Global Corporate Default Tally By Far Highest Since 2009 (Barron’s)

• US, Canadian IPOs Raise Lowest Annual Total Since 1990 (BBG)

• US Consumer Spending Drops, Clouds Fed Rate Hike Outlook (R.)

• China’s Yuan Joins Elite Club Of IMF Reserve Currencies (R.)

• State Spending Keeps China’s Industrial Sector Humming in September (WSJ)

• Has Vancouver Found The Solution To A Super-Heated Housing Market? (G.)

• Bundesbank President Rejects Calls for German Stimulus (WSJ)

• The “Pardon Snowden” Case Just Got Stronger (Cato)

• Brexit Is A ‘Once-in-a-Generation’ Chance To Save UK’s WIldlife (Ind.)

• Bees Added To US Endangered Species List For The First Time (G.)

• Elephants Have Learned To Avoid Poachers By Hanging Out With Rangers (Konbini)

A planted rumor. “..if the number was correct, under German capital market rules Deutsche Bank would be required to confirm the amount by now..”

• Why You Should Be Skeptical Of That $5.4 Billion Deutsche Settlement (CNBC)

Shares of Deutsche Bank were leaping in New York trade Friday on a report that it was near a settlement with the U.S. Department of Justice, but there’s reason to be skeptical about the number being cited. Shares of Deutsche Bank have extended their gains, up about 14% in afternoon trading, after an AFP report that Germany’s biggest bank is close to a $5.4-billion dollar settlement with the Justice Department over mortgage bonds. […] But if the number was correct, under German capital market rules Deutsche Bank would be required to confirm the amount by now. Its failure to do so indicates the number is not correct.

Any eventual settlement, however, would almost certainly be well below the reported $14-billion opening bid by the Department of Justice in its talks with Deutsche. Deutsche Bank is not publicly commenting on the supposed $5.4-billion figure. The capital market rules say the bank would have to react almost immediately to a report on such a settlement. That’s why two weeks ago, after The Wall Street Journal reported on the initial $14-billion figure, Deutsche Bank quickly put out a release confirming the news. “The negotiations are only just beginning,” Deutsche Bank said at the time. “The bank expects that they will lead to an outcome similar to those of peer banks which have settled at materially lower amounts.”

Far from over: “Once they come to some resolution on the difference between what they are charged, $14 billion, and what they are going to pay, call it $5 or $6 billion, the market is going to be afraid there is a problem..”

• A Deutsche Bank Settlement Rumor Overshadows US Equities (R.)

Deutsche Bank will likely cast a pall over equity markets next week as the largest German lender navigates a possible multi-billion dollar settlement with the U.S. Department of Justice over the sale of mortgage-backed bonds. Deutsche shares traded in the United States hit a record low on Thursday, falling as much as 24% since the DOJ asked the bank to pay $14 billion to settle charges related to its sale of toxic mortgage bonds before the financial crisis. But the stock had its best day in five years Friday, on record volume, after news agency AFP reported that Deutsche was nearing a much-lower $5.4 billion settlement with the DOJ. Analysts at Morgan Stanley estimated Deutsche could pay about $6 billion to settle with the DOJ. Stocks on Wall Street broadly tracked Deutsche over the past few days and will likely continue to do so, analysts say.

“While it is in the headlines, it is an overhang,” said Art Hogan at Wunderlich Securities in New York. “Once they come to some resolution on the difference between what they are charged, $14 billion, and what they are going to pay, call it $5 or $6 billion, the market is going to be afraid there is a problem,” Hogan said. Deutsche’s market capitalization of near $18 billion makes it much smaller than its U.S. peers like Bank of America, at $155 billion, or Citi, at $133 billion. However its trading relationships with the world’s largest financial institutions make a potential breakdown at Deutsche a bigger risk to the wider financial system than any other global bank, the International Monetary Fund said in June. “Its world print and eurocentric role are unrivaled, so it is going to drive the narrative next week,” said Peter Kenny at Global Markets Advisory Group in New York.

Merkel’s room to move is shrinking.

• Deutsche Bank Takes a Lashing From the German Public (WSJ)

Deutsche Bank is getting rough treatment in the market. It is also having a hard time with its own public. The lender, founded in 1870, has turned from an object of patriotic pride into what critics on both sides of the political spectrum openly deride as a national embarrassment. Multibillion-dollar losses last year, investigations into misconduct around the world, concerns about its capital cushion and rich pay have made Deutsche Bank a handy target for left-leaning critics that accuse it of short-term thinking and greed. Many on the far right, meanwhile, regard Deutsche Bank as German in name only. Three out of its past four chief executives have been foreigners, including current CEO John Cryan, helping detractors tar it as the embodiment of out-of-control stateless capitalism.

The sentiment isn’t confined to political circles. A TNS Emnid poll for news magazine Focus conducted on Wednesday and released on Friday showed that 69% of respondents opposed any kind of state aid for Deutsche Bank, with only 24% in favor. “People feel it’s simply unacceptable that banks should be exempted from business risks,” said Frank Decker, politics professor at Rheinische Friedrich-Wilhelms-University in Bonn. [..] the lack of support at home, along with strict bailout rules Germany has backed for banks in the European Union, could limit the government’s room for maneuver should Deutsche Bank end up in a position that it does need help.

Despite the trauma of the financial crisis, large institutions such as Deutsche Bank haven’t learned any lessons, said Manfred Güllner, head of the Forsa polling group, making any bailout a tougher sell than in 2008. “While the returns on savings keep falling in a bottomless pit—and now into negative territory—the banks, as always, keep conducting their risky speculative businesses,” the populist Alternative for Germany party said in a Facebook post Thursday. “Whenever they get in trouble, the politicians are always there to help with taxpayers’ money.”

“When the stock market ends up for the three-month period, the Democrat wins. When it’s negative, the Republican wins.”

• Trump Will Win, Unless the S&P Rallies in October (BBG)

October is the bad boy of the stock market. The Panic of 1907, the Crash of 1929, Black Monday in 1987. It’s notable for another reason, too. The performance of Standard & Poor’s 500-stock index from July 31 to Oct. 31 has a curious way of predicting the winner of the presidential election. As with every prediction, take it with a giant grain of salt. But the pattern is solid, as shown in this chart by Sam Stovall, equity strategist for S&P Global Market Intelligence1. When the stock market ends up for the three-month period, the Democrat wins.

When it’s negative, the Republican wins. Since this July 31, the S&P is in slightly negative territory. Two times the pattern didn’t hold were in 1968 and 1980, when influential third-party candidates were in race, including George Wallace, who took about 14% of the popular vote in ’68. The pattern also failed in 1956, which Stovall says could be attributed to geopolitical events putting the markets on edge. That was the year of the Suez Crisis and the Hungarian Uprising, he noted.

“What if the last 30 years of exuberant world trade growth was the ‘outlier’..”

• Global Trade Crashes Back To “Very Old Normal” (ZH)

“Get used to it” is the message from Goldman Sachs when it comes to the collapse in global trade… What if the last 30 years of exuberant world trade growth was the ‘outlier’ and we are now reverting to the pre-Greenspan normal? As Goldman’s Goohoon Kwon explains, a low trade beta may be normal:

“Finally, another explanation for the trade slowdown is that it simply represents a return to normal. Historical trade data show that the global trade beta was slightly higher than 1 in the early 1950s before rising gradually due to a series of extraordinary events. In the 1960s-1980s, it rose to around 1.5, boosted by multilateral efforts for trade reforms, which reduced average tariffs from 35% in 1947 to 6.4% at the start of the of the Uruguay Round (1986-94) of global trade negotiations. Thereafter, the breakup of the Soviet Union enabled global trade to expand rapidly in the 1990s, and the WTO entry of China in 2001 helped sustain the trade beta at around 2 in the 2000s. There is therefore an argument that a series of largely one-off factors drove the trade beta to unusually high levels.”

And as Goldman warns, there is limited upside to global trade from here…

“Given these structural forces, the outlook for global trade remains weak in our view, though it might rebound somewhat in the short term. Asian trade is likely to recover moderately in coming years, helped by the eventual dissipation of capacity overhangs in China and reductions in internal imbalances in the economy. And further trade liberalization, including in services, presents upside for global trade. However, the restructuring of overcapacity sectors seems to be proceeding slowly so far in Asia, as reflected in low and still-falling capacity utilization in China and Korea. Moreover, the current political backdrops in the major economies suggest that another major push for trade liberalization might be off the table, at least for now.”

By far the worst year since 2009.

• Global Corporate Default Tally By Far Highest Since 2009 (Barron’s)

Three corporate defaults in the past week, two metals companies and one telecom firm, brought the total number of defaults around the world to 130. That’s a lot more than last year. Diane Vazza, head of S&P Global Fixed Income Research says: “The default tally is 60% higher than the count at this time in 2015 and has surpassed the total number of defaults recorded in full-year 2015, 113 defaults. The last time the global tally was higher at this point in the year was in 2009, when it reached 223 during the financial crisis.” Energy and commodity-related firms make up over half of the defaults; 70% are U.S. companies. Vazza notes: “As of Aug. 31, 2016, the global speculative-grade default rate for the energy and natural resources sector was 17.9%–more than seven times higher than the default rate of all other sectors.”

How to make a pretty awful number sound good.

• US, Canadian IPOs Raise Lowest Annual Total Since 1990 (BBG)

It’s been a paltry year for initial public offerings. Fewer than 135 companies have made their debuts in U.S. and Canada, putting 2016 on pace to be the slowest for IPOs since 1990, according to data compiled by Bloomberg. With $14.4 billion raised so far, we’re also on track to witness the lowest annual total on that score since 1990. For the companies that have made it to market, the dearth of activity has helped underpin demand. That’s especially true in the case of tech IPOs, where (as my colleague Shira Ovide has written) the paucity of new issues has left investors scrambling for any new listing, driving valuations to potentially unsustainable levels.

Nutanix, a tech unicorn that priced Thursday evening, will likely continue the trend, with its shares poised for a surge when they begin trading Friday. But another crop of listings – backed by private equity – has also done well out of the chute this year, and may offer the potential for more lasting gains. On average, new issues of private-equity backed companies have rallied 34.5% this year through Thursday, topping the 28.2% average return for all U.S. and Canadian IPOs during the same period, according to data compiled by Bloomberg.

David Stockman put it like this: “They shopped till they dropped.”

• US Consumer Spending Drops, Clouds Fed Rate Hike Outlook (R.)

U.S. consumer spending fell in August for the first time in seven months while inflation showed signs of accelerating, mixed signals that could keep the Federal Reserve cautious about raising interest rates. The Commerce Department said on Friday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, fell 0.1% last month after accounting for inflation. Analysts polled by Reuters had expected a 0.1% gain. “Consumers took a breather in August,” said Chris Christopher of IHS Global Insight. Fed Chair Janet Yellen said last week she expected the U.S. central bank would raise rates once later this year to keep the economy from eventually overheating.

Prices for fed funds futures suggest investors see almost no chance of a hike at the Fed’s next policy meeting in early November and roughly even odds of an increase at its mid-December meeting, according to CME Group. The dollar was little changed against a basket of currencies while U.S. stock prices were trading higher. Consumer spending, which has been robust in recent months, partially offset the drag from weak business investment and falling inventories in the second quarter when the economy expanded at a lackluster 1.4% annual rate.

A mixed blessing.

• China’s Yuan Joins Elite Club Of IMF Reserve Currencies (R.)

China’s yuan joins the IMF’s basket of reserve currencies on Saturday in a milestone for the government’s campaign for recognition as a global economic power. The yuan joins the U.S. dollar, the euro, the yen and British pound in the IMF’s special drawing rights (SDR) basket, which determines currencies that countries can receive as part of IMF loans. It marks the first time a new currency has been added since the euro was launched in 1999.The IMF is adding the yuan, also known as the renminbi, or “people’s money”, on the same day that the Communist Party celebrates the founding of the People’s Republic of China in 1949.

“The inclusion into the SDR is a milestone in the internationalization of the renminbi, and is an affirmation of the success of China’s economic development and results of the reform and opening up of the financial sector,” the People’s Bank of China said in a statement. China will use this opportunity to further deepen economic reforms and open up the sector to promote global growth, the central bank added. The IMF announced last year that it would add the yuan to the basket, so actual inclusion is not expected to impact financial markets. But it puts Beijing’s often opaque economic and foreign exchange policy in the international spotlight as some central banks add yuan assets to their official reserves.

Critics argue that the move is largely symbolic and the yuan does not fully meet IMF reserve currency criteria of being freely usable, or widely used to settle trade or widely traded in financial markets. U.S. Republican presidential nominee Donald Trump has said he will formally label China a currency manipulator if he wins November’s election. China stunned investors by devaluing the currency last year and the yuan has since weakened to near six-year lows, adding to worries about already feeble global growth. Some China watchers also fear that Beijing’s commitment to further market opening and financial sector reforms will fade after its diplomatic success, despite repeated reassurances from Beijing it will continue with the process.

Now that China has entered the IMF basket, it’ll get much harder to keep this up: “It’s very clear that this sort of continued funding of industrial overcapacity sectors is unsustainable.”

• State Spending Keeps China’s Industrial Sector Humming in September (WSJ)

Activity in China’s crucial industrial sector appeared to stabilize last month, with an official index on manufacturing holding steady, buoyed by state spending on infrastructure. China’s official manufacturing purchasing managers index was unchanged at 50.4 in September compared with August, the National Bureau of Statistics reported Saturday. The gauge has remained above 50, which separates expansion from contraction, for six out of the past seven months. The September reading matched a median forecast of 50.4 by 11 economists polled by The Wall Street Journal.

Subindexes gave mixed readings. One measured new orders weakening, while another for production showed improvement; both remained above 50. The official nonmanufacturing PMI edged up to 53.7 in September from 53.5 in August. Economists said stepped-up bank lending and spending on government projects is helping to steady an economy that got off to a wobbly start to the year and has been slowing overall in recent years. “You’re seeing a bit of a credit-fueled holding pattern,” said Angus Nicholson, an analyst with IG Markets. “The question is: when does that turn around and when are they going to cut credit? It’s very clear that this sort of continued funding of industrial overcapacity sectors is unsustainable.”

Better question: do other cities have the guts to follow suit?

• Has Vancouver Found The Solution To A Super-Heated Housing Market? (G.)

There is a city which is suffering a worse property bubble than Sydney, whose residents are more priced-out than Londoners, and where there is a greater divide between the housing haves and have-nots than even San Francisco. That city is Vancouver, and in response to these mounting challenges, the west-coast Canadian metropolis recently imposed an extraordinary new tax on foreign buyers – whose impact is now being watched closely by other cities grappling with bloated property markets. On 2 August, Vancouver introduced a tax on anyone from outside Canada wanting to buy a home in its super-heated market. In future, city authorities said, if you weren’t Canadian, you would have to pay an extra 15% on the purchase price.

The impact has, by some measures, been more startling than campaigners could have hoped for. The price of the average detached home reportedly slumped by an astonishing 16.7% in August alone to C$1.47m (£856,000), according to the Real Estate Board of Greater Vancouver. Some agents are reporting that the market has gone from red hot to stone cold in a matter of weeks. British Columbia’s premier, Christy Clark, who introduced the tax, told reporters there will be no going back on it. “The prices were going up way too fast and if we helped slow that down, that’s good,” she said. In the year before the tax, prices in the city were galloping ahead at a rate of 39% a year amid widespread concern that investors, from China in particular, were pricing out local residents.

It is a concern echoed in cities across the Pacific Rim. In June, Sydney introduced a 4% stamp duty surcharge on foreigners buying homes; the following month, Melbourne hiked stamp duty rates from 3% to 7% for foreign buyers – in both cases to deter rampant property speculation. Queensland, whose capital is Brisbane, has followed suit with an extra 3% duty surcharge that will be slapped on “foreign persons” buying residential property and land from 1 October. In Auckland, New Zealand – currently the world’s frothiest property market – property investors are, as of last month, required to put down at least 40% of the purchase price in cash.

By ignoring Germany’s role in destroying the Greek and Italian economies, Weidmann ensures the downfall of the eurozone, and thereby of Germany itself.

• Bundesbank President Rejects Calls for German Stimulus (WSJ)

It’s absurd to ask Germany’s government to spend more to bolster eurozone growth, German Central Bank President Jens Weidmann said on Thursday, rejecting growing pressure on Berlin to loosen its purse strings. Speaking in the German capital, Mr. Weidmann said a fiscal stimulus program in Germany was unnecessary given the nation’s robust economy, and would have few positive effects for other countries anyway. Earlier this month, ECB President Mario Draghi joined the chorus of voices that have criticized Germany for reining in its spending at a time of weak economic growth. “Countries that have fiscal space should use it,” Mr. Draghi said at a news conference. “Germany has fiscal space.”

But Mr. Weidmann argued that Germany’s national debt was already high, and the country’s aging population “calls for lower rather than higher debts.” Mr. Draghi tempered his remarks on Wednesday after a meeting in Berlin with German lawmakers, who grilled him over the ECB’s easy-money policies and their impact on German savers and banks. “Germany does have fiscal space [but] we need to be nuanced,” Mr. Draghi said. “I never argued for irresponsible fiscal expansion.”

It couldn’t be more obvious.

• The “Pardon Snowden” Case Just Got Stronger (Cato)

Yesterday, the Department of Justice Inspector General (DoJ IG) issued a long overdue Congressionally-mandated report on FBI compliance with the PATRIOT Act’s Section 215 “business records” provision between 2012 and 2014. It is the first such report issued that covers the initial period of Edward Snowden’s revelations about widespread domestic mass surveillance by the federal government. Since his indictment for leaking the information to the press, Snowden’s lawyers have argued that he should not be prosecuted under the WW I-era Espionage Act because his revelations served the public interest. The DoJ IG report provides the clearest evidence yet that Snowden’s lawyers are correct (p. 6):

“In June 2013, information about the NSA’s bulk telephony metadata program was publicly disclosed by Edward Snowden. These disclosures revealed, among other things, that the FISA Court had approved Section 215 orders authorizing the bulk collection of call detail records. The telephony metadata collected by the NSA included information from local and long-distance telephone calls, such as the originating and terminating telephone number and the date, time, and duration of each call. The disclosures prompted widespread public discussion about the bulk telephony metadata program and the proper scope of government surveillance, and ultimately led Congress to end bulk collection by the government in the USA Freedom Act.”

Public discussion of the controversy. Very public action by Congress to change the law, addressing at least one major abuse brought to light by Snowden. And there was more (p. 33):

“An [National Security Division] Deputy Unit Chief noted that the number of business records orders reached its peak in 2012 and has declined annually since then, and that the number of [Electronic Communication Transation] requests has declined more than other types of requests. The Deputy Unit Chief said that the Snowden revelations have played a role in this decline, both in terms of the stigma attached to use of Section 215 and increased resistance from providers. The Deputy Unit Chief stated, “I think that it’s possible that folks … have decided it’s not worth pursuing [business records orders], you know, obviously things haven’t been great with providers since Snowden either.” ”

Translation: Snowden’s actions forced companies like Verizon, Yahoo and others to grow a spine and start defending the Fourth Amendment rights of their customers. Earlier this month, a group of non-governmental organizations and individuals launched a campaign to get President Obama to pardon Snowden before he leaves office. We now have the department seeking Snowden’s prosecution offering unambigous evidence that his whistleblowing actions served the public interest. Obama should direct DoJ to drop the case or he should pardon Snowden. Either approach would be in the public interest, just as Snowden’s actions were.

if there’s anyone left claiming to be surprised by Brexit, they must be blind.

• Record Numbers Left Homeless After Eviction By Private Landlords In UK (G.)

Record numbers of families are becoming homeless after being evicted by private landlords and finding themselves unable to afford a suitable alternative place to live, government figures show. The end of an assured shorthold tenancy (AST) was cited by nearly a third of the 15,170 households in England who were classed as homeless in the three months to June – a number that was up 10% on the same period last year. The problem was particularly acute in London, accounting for 41% of all homelessness acceptances in the capital during the period, according to figures from the Department for Communities and Local Government (DCLG). The end of an AST has rapidly become the single biggest cause of homelessness in recent years, triggered by spiralling rent rises and cuts to housing benefit support.

In 2010 just 11% of homeless acceptances in England were caused by the end of an AST. The government’s statistical release states: “Affordability [of housing] is an increasingly significant issue, as more households facing the end of a private tenancy are unable to find an alternative without assistance.” Bob Blackman, a Tory backbencher who has drawn up a private member’s bill seeking to require councils to do more to help households at risk of losing their homes, said: “It is a national disgrace when we have the highest number of people in employment ever, we have a low rate of unemployment, that we still have people sleeping rough. Goodness knows what will happen if there is a recession.”

Not if and when the present political climate perseveres.

• Brexit Is A ‘Once-in-a-Generation’ Chance To Save UK’s WIldlife (Ind.)

Brexit will be a “once-in-a-generation chance” to reverse the huge decline in Britain’s wildlife, according to four of the UK’s leading environmental groups. The RSPB, WWF UK, National Trust and The Wildlife Trusts said the British countryside was “key to our identity as a nation” and farmers had the ability address the “urgent challenge of restoring nature”. They called on the Government to replace the much-criticised EU Common Agricultural Policy subsidy system with a British one that pays farmers to maintain “high environmental standards”. Earlier this month, the State of Nature 2016 report – produced by more than 50 organisations – concluded the UK was one of the “most nature-depleted countries in the world”. More than one in seven species face extinction and more than half are in decline.

However, in its response to the conservation groups’ call, the Government insisted the natural environment was “cleaner and healthier than at any time since the industrial revolution”. The National Farmers Union (NFU) said its members understood “the importance of protecting the environment” and complained that some organisations were making suggestions about agricultural policy “without speaking to those the policy most affects”. In a joint statement, called A new policy for our countryside, the four conservation groups said the UK’s departure from the EU “will be one of the most defining events for farming and our environment in living memory”. “[It] provides an unprecedented opportunity to revitalise our countryside in a way that balances the needs of everyone, for generations to come,” they said.

We have created far too great a distance between ourselves and the world that gives us life.

• Bees Added To US Endangered Species List For The First Time (G.)

Seven types of bees once found in abundance in Hawaii have become the first bees to be added to the US federal list of endangered and threatened species. The listing decision, published on Friday in the Federal Register, classifies seven varieties of yellow-faced or masked bees as endangered, due to such factors as habitat loss, wildfires and the invasion of non-native plants and insects. The bees, so named for yellow-to-white facial markings, once crowded Hawaii and Maui but recent surveys found their populations have plunged in the same fashion as other types of wild bees – and some commercial ones – elsewhere in the United States, federal wildlife managers said.

Placing yellow-faced bees under federal safeguards comes just over a week since the US Fish and Wildlife Service proposed adding the imperilled rusty patched bumble bee, a prized but vanishing pollinator once found in the upper midwest and north-eastern United States, to the endangered and threatened species list. One of several wild bee species seen declining over the past two decades, the rusty patched bumble bee is the first in the continental United States formally proposed for protections. The listing of the Hawaii species followed years of study by the conservation group Xerces Society, state government officials and independent researchers. The Xerces Society said its goal was to protect nature’s pollinators and invertebrates, which play a vital role in the health of the overall ecosystem.

Nice, but that’s just a few of them. I think we’re going to end up sending our armies, our children and grandchildren, to Africa and far beyond, to the oceans, to try and keep alive enough of what preceded us on this planet in order to guarantee our own species can survive. But I can’t say I have high hopes.

• Elephants Have Learned To Avoid Poachers By Hanging Out With Rangers (Konbini)

In an effort to protect diminishing elephant herds in the Democratic Republic of Congo’s Virunga National Park, a Kenyan conservation group fitted elephants with collars so they could monitor and track them in real time. Save the Elephants claim some of the herds they track have started changing their behavior to avoid dangerous areas, which the team believes is an adaptation to poaching. “Several elephant families [were seen] clustered around ranger posts, suggesting they had learned to distinguish the heavily armed rangers as harmless,” STE founder Iain Douglas-Hamilton said. In one rebel-afflicted area, elephants had even started hanging out at ranger checkpoints where huge trucks of charcoal and hardwood rumble through every few minutes.

“Yet somehow the elephants sensed that they were safe there and walked close to the voluble rangers.” Elephants that are able to distinguish rangers from poachers represent an incredible feat of animal ingenuity, but according to experts, it’s all quite understandable. According to My Green World, these mammals are similar to gorillas, in that they’re “smart, sensitive, loyal and aware.” But while this is great news for elephants (and bad news for outsmarted poachers), there’s still the matter of curbing the ongoing colossal hunting epidemic. Africa had 1.3 million elephants in the 1970s, but today there are only 500,000. So there is still quite a way to go before elephants can be taken off the endangered species list.

Older Entries Newer Entries